Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $900,000. The estimated market values of the purchased assets are building, $508,800; land, $297,600; land improvements, $28,800; and four vehicles, $124,800. The company’s fiscal year ends on December 31.Required:a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. b. Prepare the journal entry to record the purchase. c. Compute the depreciation expense for year 2018 on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value. d. Compute the depreciation expense for year 2018 on the land improvements assuming a five-year life and double-declining-balance depreciation. e. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Explanation:

Lumpsome cost of assets = 900,000

Estimated market value = 960,000

Asset          Cost         Percentage           Acquisition

Building     508,800      53                    53%*900,000    477,000

Land           297,600      31                      31%*900,000    279,000

Land            28,800         3                       3%*900,000      27,000

improvement            

Vehicles      124,800      13                       13%*900,000     117,000

                    960,000                                                          900,000

b)

Date                         General journal           Debit         Credit

January 1                       Building                    477,000

                                       Land                        279,000

                        Land improvement                   27,000

                                    Vehicles                        117,000

                                         Cash                                              900,000

C

Book value of Building = 477,000

salvage value = 27,000

Useful life = 15 years

Depreciable amount = 450,000

Depreciation = 450,000/15 = 30,000

d)

Useful life = 5 years

Normal declining rate = 100/5 = 20%

Double declining rate = 20%*2= 40%

Depreciation charge = 40%*27000

=10,800

100%/5

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