Xavier Construction negotiates a lump-sum purchase of several assets from a comp

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 $830,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $498,200; land, $253,800; land improvements, $75,200; and four vehicles, $112,800. The company

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 $830,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $498,200; land, $253,800; land improvements, $75,200; and four vehicles, $112,800. The company

Explanation / Answer

A-Market value of assets

498,000 Building
$253,800 Land
$75200 Land Improvements
112,800 Vehicles
940,000 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 = (498,000/940,000) x 830,000 = $439,900
Land = (2,53,800/940,000) x 830,000 = $224,100
Land Improvements =(75,200/940,000) x 830,000 =$66,400
Vehicles = (1,12,800/940,000) x 830,000= $ 99,600

2.
Depreciation Expense on building = (439900 - 30000) / 15 = $27327

3. Book value for land improvements = 66,400

depreciation expense under straight line = 66400/5 =$13280

double-declining-balance depreciation = $13280*2=$26560

Building Land Land Improvements Four vehicles Market price 4,98,200 2,53,800 75,200 1,12,800 Book value 4,39,900 2,24,100 66,400 99,600 Percentage 53% 27% 8% 12%

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