I. plant asset cost; depreciation methods ii. asset cost allocation

I. Plant Asset Cost; depreciation methods

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, 2013, at a total cash price of $900,000 for a building, land, land improvements and four vehicles.  The estimated market values of the 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:

1. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased (round per cents to the nearest 1%). Prepare the journal entry to record the purchase.

2. Compute the depreciation expense for year 2013 on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.

3. Compute the depreciation expense for year 2013 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Analysis Component

4. Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the asset’s life.

II. Asset Cost Allocation; straight-line-depreciation

In January 2013, Mitzu Co. pays $2,600,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $644,000, with a useful life of 20 years and a $60,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of the land is valued at $1,736,000. The company also incurs the following additional cost:

            Cost to demolish Building 1………………………………………….   $   328,400

            Cost of additional land ~ Hire our professional writers now and experience the best assignment help online with our custom paper writing service. We ensure your essays and assignments are expertly researched, written and delivered on time. ~ Grading………………………………………        175,400

            Cost to construct new building (Building 3), having a useful life

                        of 25 years and a $392,000 salvage value……………………     2,202,000

            Cost of new land improvements (Land Improvements 2) near

                        Building 2 having a 20-year useful life and no salvage value..       164,000

Required:

1. Prepare a table with the following column headings: Land, Building 2, Building 3, Land Improvements 1 and Land Improvements 2. Allocate the cost incurred by Mitzu to the appropriate columns and total each column (round percents to the nearest 1%).

2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.

3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2013when these assets were in use.