Question

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $900,000. The estimated market values of the purchased assets are building, $508,800; land, $297,600; land improvements, $28,800; and four vehicles, $124,800. The company’s fiscal year ends on December 31.Required:a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.b. Prepare the journal entry to record the purchase.c. Compute the depreciation expense for year 2018 on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.d. Compute the depreciation expense for year 2018 on the land improvements assuming a five-year life and double-declining-balance depreciation.e. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Answer 1

Answer:

Explanation:

Lumpsome cost of assets = 900,000

Estimated market value = 960,000

Asset          Cost         Percentage           Acquisition

Building     508,800      53                    53%*900,000    477,000

Land           297,600      31                      31%*900,000    279,000

Land            28,800         3                       3%*900,000      27,000

improvement            

Vehicles      124,800      13                       13%*900,000     117,000

                    960,000                                                          900,000

b)

Date                         General journal           Debit         Credit

January 1                       Building                    477,000

                                       Land                        279,000

                        Land improvement                   27,000

                                    Vehicles                        117,000

                                         Cash                                              900,000

C

Book value of Building = 477,000

salvage value = 27,000

Useful life = 15 years

Depreciable amount = 450,000

Depreciation = 450,000/15 = 30,000

d)

Useful life = 5 years

Normal declining rate = 100/5 = 20%

Double declining rate = 20%*2= 40%

Depreciation charge = 40%*27000

=10,800

100%/5

Answer 2

a. Preparation of  a table to allocate the lump-sum purchase price to the separate assets purchased.

First step is to Calculate the  Percentage of Total Appraised Value

Total Appraisal value=$508,800+$297,600+$28,800+$297,600

Total Appraisal value=$960,000

Building= $508,800×100/$960,000

Building= 53%

Land= $297,600×100/$960,000

Land = 31%

Land improvements= $28,800×100/$960,000

Land improvements= 3%

Vehicles= $124,800×100/$960,000

Vehicles=13%

Now let allocate the lump-sum purchase price to the separate assets purchased.

Allocation of total cost Appraised Value Percent of Total Appraised Value ×Total cost of acquisition=Apportioned cost

Building $508,800 57%×$900,000=$477,000

(53%×$900,000=$477,000)

Land $297,600 31%×$900,000=$279,000

(31%×$900,000=$279,000)

Land improvements $28,800 3%×$900,000 =$27,000

(3%×$900,000=$27,000)

Vehicles $124,800 13% ×$900,000=$117,000

(13%×$900,000=$117,000)

Total $900,000 100 % $900,000

b. Preparation of  the journal entry to record the purchase.

Jan 01

Dr Building $477,000

Dr Land $279,000

Dr Land improvements $27,000

Dr Vehicles $117,000

Cash  $900,000

($477,000+$279,000+$27,000+$117,000)

(To record the cost of lump-sum purchase)  

c. Computation for  the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.

Using this formula

Depreciation expense= (Cost-Salvage value)/Number of useful life

Let plug in the formula

Depreciation expense= ($477,000-$27,000)/15= Depreciation expense=$450,000/15

Depreciation expense=$30,000

Depreciation expense on building $30,000

d. Computation the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.

Depreciation rate= 100/5×2

Depreciation rate= 40%

Depreciation expense= $27,000*40%

Depreciation expense=$10,800

Depreciation expense on land improvements $10,800

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