air Conect . ed ir On cal year ends on December 31, struction negotiates a lumps

Question

air Conect . ed ir On cal year ends on December 31, struction negotiates a lumpsum purchase of several assets from a company that is going PROBLEM SET A herly The purchase is completed on January 1, 2015, at a total cash price of $900,000 for a ado land, land improvem of business improvements, and four vehicles. The estimated market values of the assets are build million Is800; land, $297600; land improvements, $28,800, and four vehicles, $124,800. The companys . Problem 10-1A Plant asset costs; depreciation methods ired Requi C1 P1 Denare a table to allocate lump the the -sum purchase price to separate assets purchased (round per- cents to the nearest 1%)Prepare the journal entry to record the purchase. 4. Compute the depreciation expense for year 2015 on the using the -line method, as -000 building straightCheck 2) $30 suming a 15-year life and a $27000 salvage value. 3. Compute the depreciation expense for year 2015 on the land improvements assuming a five-year life and double-declining-balance depreciation. 1 (, (3) $ 10,800 Analysis Component 4. Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the as- sets life.

Explanation / Answer

1.

Journal entry:

2. Depreciable cost of building = $477000 - $27000 = $450000

Annual depreciation = $450000 / 15 years = $30000

Depreciation expense for 2015 on building = $30000

3. Straight-line depreciation rate for land improvements = 100% / 5 years = 20%

Double-declining-balance depreciation rate = 200% x 20% = 40%

Depreciation for 2015 on land improvements = $27000 x 40% = $10800

4. The statement is incorrect as the total depreciation charge over the asset's life will be the same.

Asset Market value $ Percent of total market value Allocated purchase price $ Building 508800 53% 477000 Land 297600 31% 279000 Land improvements 28800 3% 27000 Vehicles 124800 13% 117000 960000 100% 900000

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