Xavier Construction negotiates a lump-sum purchase of several assets from a comp
ID: 2349128 • Letter: X
Question
Xavier Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2011, at a total cash price of $787,500 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $408,000; land, $289,000; land improvements, $42,500; and four vehicles, $110,500. The company's fiscal year ends on December 31.Required
1.
Prepare a table to allocate the lump-sum purchase price to the separate assets purchased (round percents to the nearest 1%). Prepare the journal entry to record the purchase.
2.
Compute the depreciation expense for year 2011 on the building using the straight-line method, assuming a 15-year life and a $25,650 salvage value.
3.
Compute the depreciation expense for year 2011 on the land improvements assuming a five-year life and double-declining-balance depreciation.
Explanation / Answer
Market value of assets 408,000 Building 289,000 Land 42,500 Land Improvements 110,000 Vehicles 850,000 Total market value To find what cost each asset is entered into the books, divide the asset market value by the total market value, then multiply by the total cash price. Building = (408,000/850,000) x 787,500 = $378,000 Land = (289,000/850,000) x 787,500 = $267,750 Land Improvements = (42,500/850,000) x 787,500 =$39,375 Vehicles = (110,500/850,000) x 787,500 = $102,375 Depreciation Expense on building = (378,000 - 25,650) / 15 = $23,490
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