Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out...

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Timberly Construction negotiates a lump-sum purchase of severalassets from a company that is going out of business. The purchaseis completed on January 1, 2017, at a total cash price of $850,000for a building, land, land improvements, and four vehicles. Theestimated market values of the assets are building, $537,300; land,$268,650; land improvements, $59,700; and four vehicles, $129,350.The company’s fiscal year ends on December 31.

Required:
1-a. Prepare a table to allocate the lump-sumpurchase price to the separate assets purchased.
1-b. Prepare the journal entry to record thepurchase.
2. Compute the depreciation expense for year 2017on the building using the straight-line method, assuming a 15-yearlife and a $31,000 salvage value.
3. Compute the depreciation expense for year 2017on the land improvements assuming a five-year life anddouble-declining-balance depreciation.

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4.2 Ratings (909 Votes)

1-a)

ALLOCATION OF AMOUNT PAID
	Market value	market value weights	Cost allocated
Building	537300	537300/995000= .54	850000*.54= 459000
Land	268650	268650/995000= .27	850000*.27= 229500
Land improvements	59700	59700/995000= .06	51000
Four vehicles	129350	129350/995000= .13	110500

Total market value	995000		850000

1-b)

Date	Account title	Debit	credit
1 Jan 2017	Building	459000
	Land	229500
	Land improvements	51000
	Four vehicles	110500
	cash		850000

2)Depreciation expense =[cost-salvage value ]/useful life

= [459000-31000]/15

= 28533.33

Date	Account title	Debit	credit
31Dec 2017	Depreciation expense -Building	28533
	Accumulated depreciation-Building		28533

3)double declining depreciation rate : 2/ useful life

= 2/5

= .40 or 40%

Date	Account title	Debit	credit
31Dec 2017	Depreciation expense -land improvement (51000*.40)	20400
	Accumulated depreciation-Land improvement		20400

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Transcribed Image Text

Timberly Construction negotiates a lump-sum purchase of severalassets from a company that is going out of business. The purchaseis completed on January 1, 2017, at a total cash price of $850,000for a building, land, land improvements, and four vehicles. Theestimated market values of the assets are building, $537,300; land,$268,650; land improvements, $59,700; and four vehicles, $129,350.The company’s fiscal year ends on December 31.Required:1-a. Prepare a table to allocate the lump-sumpurchase price to the separate assets purchased.1-b. Prepare the journal entry to record thepurchase.2. Compute the depreciation expense for year 2017on the building using the straight-line method, assuming a 15-yearlife and a $31,000 salvage value.3. Compute the depreciation expense for year 2017on the land improvements assuming a five-year life anddouble-declining-balance depreciation.