To add to his growing chain of grocery stores, on January 1, 2012, Danny Marks b

Question

To add to his growing chain of grocery stores, on January 1, 2012, Danny Marks bought a grocery store of a small competitor for $520,000. An appraiser, hired to assess the acquired assets' value, determined that the land, building, and equipment had market values of $200,000, $150,000, and $250,000, respectively.

Required:

1. What is the acquisition cost of each asset? Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

2. Danny plans to depreciate the operating assets on a straight-line basis for 20 years. Determine the amount of depreciation expense for 2012 on these newly acquired assets. You can assume zero residual value for all assets. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Acqusition Cost of Land = Total Amount Paid*Market Value of Land/Sum of Market Value of All Assets = 520000*200000/(200000 + 150000 + 250000) = 173333

Acqusition Cost of Building = Total Amount Paid*Market Value of Land/Sum of Market Value of All Assets = 520000*150000/(200000 + 150000 + 250000) = 130000

Acqusition Cost of Equipment = Total Amount Paid*Market Value of Land/Sum of Market Value of All Assets = 520000*250000/(200000 + 150000 + 250000) = 216667

Part B:

Depreciation (Land) = Acquistion Cost/Estimated Life = 173333/20 = 8667

Depreciation (Building) = Acquistion Cost/Estimated Life = 130000/20 = 6500

Depreciation (Equipment) = Acquistion Cost/Estimated Life = 216667/20 = 10833

Thanks.

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