PLANT ASSETS AND DEPRECIATION METHODS PROBLEM: Century Company negotiated a lump
ID: 2776599 • Letter: P
Question
PLANT ASSETS AND DEPRECIATION METHODS
PROBLEM: Century Company negotiated a lump-sum purchase of several assets from a contractor who was retiring. The purchase was completed on January 1 of the current year, at a total cash price of $1,500,000 for a building, land land improvements, and five trucks. The estimated market value of the assets are: Building $890,000; Land $427,200; Land improvements $249,200; and five trucks $213,600. The company's fiscal year ends December 31.
REQUIREMENTS:
1.What is the lump-sum cost allocation?/
Journal entries to record this PURCHASES.
2.-Using the Straight-line method; The Declining balance method, and The sum of the Years digit method, calculate the ANNUAL DEPRECIATION FOR THE BUILDIING over the life of this asset. Assume a 12 years life and a $120,000 salvage value. (Aquisition historic cost - Estimated life in years - Estimated Salvage value)
Show Journal entries using each method for the first two years on the general ledger.
3.- Show the annual depreciation on the FIVE TRUCKS using:
Straight line method, ( Accounting periood - created formula showing the Depreciation Expense).
The declining balance method (Accounting period - Current book value - Depreciation Rate, Depreciation Expense, with a mannualy created formula).
The sum-of-the-years digits methods. ( Accounting period - Depreciation Expense).
Assume a 5 year life and a salvage value of $3,000 each, or $15,000. The company uses the composite method for simplicity for all trucks. This means you will calculate the total just one time for all five trucks together.
Create a math formula to solve for depreciation.
Journal entries with each method.
4.- Annual depreciation of the LAND IMPROVEMENTS using the Straight-line method only. Assume a 10 years life and no salvage value.
Create a maanual formula.
Thanks for your help and please, show all required steps along with your calculations to understand this project.
NOTE: This is all the information given in the text book.*
Explanation / Answer
The term lump sum purchase refers to an agreement that involves a single price paid for a bundle, or group, of assets. Since the lump sum purchase can involve several asset classes, it's necessary to allocate the price paid to each asset so the purchase can be accurately reflected on the company's balance sheet.
Assets
Amount
%
Purchase cost
Allocation
Building
890,000
0.5
1500000
750,000
Land
427,200
0.24
1500000
360,000
Land improvements
249,200
0.14
1500000
210,000
Five trucks
213,600
0.12
1500000
180,000
1,780,000
1,500,000
The journal entry is as follows:
S.no
Account titles and equation
Debit($)
Credit($)
1
Building
750,000
Land
360,000
Land improvements
210,000
Five trucks
180,000
Cash
1,500,000
(To record the purchase of assets)
Assets
Amount
%
Purchase cost
Allocation
Building
890,000
0.5
1500000
750,000
Land
427,200
0.24
1500000
360,000
Land improvements
249,200
0.14
1500000
210,000
Five trucks
213,600
0.12
1500000
180,000
1,780,000
1,500,000
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