Respuesta :
Answer:
1-a. The answers are as follows:
Cost allocated to building = $410,000
Cost allocated to land = $213,200
Cost allocated to land improvement = $41,000
Cost allocated to four vehicles = $155,800
1-b Debit Building for $410,000; Debit Land for $213,200; Debit Land improvement for $41,000; Debit Vehicles for $155,800; and Credit Cash for $820,000.
2. The first-year depreciation expense on the building is $25,533.33.
3. The first-year depreciation expense on the land improvements is $16,400.
Explanation:
Note: This question is question is not complete. The complete question is therefore provided before answering the question as follows:
Timberly Construction makes a lump-sum purchase of several assets on January 1 at a Total cash price of $820,000. The estimated market values of the purchased assets are building, $480,000; land, $249,600, land improvement, $48,000; and four vehicles, $182,400.
Required:
1-a. Allocate the lump-sum purchase price to the separate assets purchased.
1-b. Prepare the journal entry to record the purchase.
2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.
The explanation of the answer is now given as follows:
1-a. Allocate the lump-sum purchase price to the separate assets purchased.
This can be done as follows:
Total estimated market value = $480,000 + $249,600 + $48,000 + $182,400 = $960,000
Weight of an asset = Estimated market value of the asset / Total estimated market value …… (1)
Using equation (1), we have:
Weight of building = $480,000 / $960,000 = 0.50
Weight of land = $249,600 / $960,000 = 0.26
Weight of land improvement = $48,000 / $960,000 = 0.05
Weight of four vehicles = $182,400 / $960,000 = 0.19
Cost allocated to each asset = Weight of the asset * Total cash price …………………… (2)
Using equation (2), we have:
Cost allocated to building = 0.50 * $820,000 = $410,000
Cost allocated to land = 0.26 * $820,000 = $213,200
Cost allocated to land improvement = 0.05 * $820,000 = $41,000
Cost allocated to four vehicles = 0.19 * $820,000 = $155,800
1-b. Prepare the journal entry to record the purchase.
The journal entries will look as follows:
Date Account Title Dr ($) Cr ($)
Jan. 1 Building 410,000
Land 213,200
Land improvement 41,000
Vehicles 155,800
Cash 820,000
(To record the lump-sum payment for the purchase of several assets.)
2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.
The annual depreciation can be calculated using the following formula:
Annual depreciation expense = (Cost allocated to building – Salvage value) / Expected year life = ($410,000 - $27,000) / 15 = $25,533.33
Therefore, the first-year depreciation expense on the building is $25,533.33.
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.
We first calculate the double-declining-balance depreciation rate as follows:
Straight line depreciation rate = 1 / Number of years of life = 1 / 5 = 0.20, or 20%
Double-declining depreciation rate = Straight line depreciation rate * 2 = 20% * 2 = 40%
Therefore, we have:
First-year depreciation expense = Cost allocated to land improvement * Double-declining depreciation rate = $41,000 * 40% = $16,400
Therefore, the first-year depreciation expense on the land improvements is $16,400.
