Xavier 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, 2011, at a total cash price of $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $481,950; land, $255,150; land improvements, $37,800; and four vehicles, $170,100. The company’s fiscal year ends on December 31. Required: 1.1 Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Xavier 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, 2011, at a total cash price of $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $481,950; land, $255,150; land improvements, $37,800; and four vehicles, $170,100. The company’s fiscal year ends on December 31.

  

Required:

1.1

Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.   1.2 Prepare the journal entry to record the purchase.   2. Compute the depreciation expense for year 2011 on the building using the straight-line method,  assuming a 15-year life and a $31,000 salvage value. 3. Compute the depreciation expense for year 2011 on the land improvements assuming a five-year life and double-declining-balance depreciation.   Explanation: 2. Year 2011 straight-line depreciation on building       [($418,200 – $31,000) / 15 years]  = $25,813 3. Year 2011 double-declining-balance depreciation on land improvements  (100% / 5 years) × 2 = 40% rate       $32,800 × 40% = $13,120