Timberly Construction negotiates a lump-sum purchase of several assets from a co
ID: 2589373 • Letter: T
Question
Timberly 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, 2017, at a total cash price of $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $504,900; land, $289,850; land improvements, $56,100; and four vehicles, $84,150. The company’s fiscal year ends on December 31. Required: 1-a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. 1-b. Prepare the journal entry to record the purchase. 2. Compute the depreciation expense for year 2017 on the building using the straight-line method, assuming a 15-year life and a $31,000 salvage value. 3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.
Explanation / Answer
1-a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.
1-b. Prepare the journal entry to record the purchase.
2. Compute the depreciation expense for year 2017 on the building using the straight-line method, assuming a 15-year life and a $31,000 salvage value
Depreciation expenses for 2017 = (442800-31000)/15= 27453
3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.
straight line dep = 100/5 = 20%
Double decline dep = 20*2=40%
Land inprovement dep for 2017 = (49200*40%) = 19680
Market price Lump sum cost allocated Building 504900 820000/935000*504900 442800 Land 289850 820000/935000*289850 254200 Land improvement 56100 820000/935000*56100 49200 Four vehicles 84150 820000/935000*84150 73800 Total 935000 820000Related Questions
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