Lump-sum purchase of several assets


Teness 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, 2009, 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, $514,250; land, $271,150; land improvements, $65,450; and four vehicles, $84,150. 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. Prepare the journal entry to record the purchase.

2. Compute the depreciation expense for year 2009 on the building using the straight-line method, assuming a 15-year life and a $30,000 salvage value.

3. Compute the depreciation expense for year 2009 on the land improvements assuming a five-year life and double-declining-balance depreciation.

4. Defend or refuse this statement: Accerlerated depreciation results in payment of less taxes over the asset's life.

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Accounting Basics: Lump-sum purchase of several assets
Reference No:- TGS082485

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