CASSEL & Company negotiates a lump-sum purchase of several assets from a contrac

Question

CASSEL & Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 20XX, at a total cash price of $1,720,000 for a building, land, land improvements, and equipment. The appraised value of the assets are building, $895,400; land, $430,200; land improvements, $248,200; and equipment, $203,900. The Company's fiscal year ends December 31.

A. Prepare a table to allocate the lump-sum purchase price to the separate assests purchased. Prepare the journal entry to record this purchase.

B. Compute the depreciation expense for the first year on the building using the straight-line method, assuming a 12 year life and a $120,000 salvage value.

C. Compute the depreciation expense for the first and second years on the land improvements assuming a 10 year life, using the double-declining-balance method.

Round all calculations to the nearest whole dollar or percent.

Show work!!!

Explanation / Answer

A. Â Prepare a table to allocate the lump-sum purchase price to the separate assests purchased. Â Prepare the journal entry to record this purchase.

Buildng A/c Dr $895,400

Land A/c Dr $678,400

Equipment A/c Dr $203,900

ToDiscount A/c $57,700

To Cash A/c $1,720,000

B. Compute the depreciation expense for the first year on the building using the straight-line method, assuming a 12 year life and a $120,000 salvage value.

depreciation=$895,400-$120,000/12 = $64583

DepreciationA/c Dr $64583

To building A/c $64583

same entry Every year up to 12 Years

Cash A/C Dr $120,000

To building A/c $120,000

No depreciation will be calculated on Land

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