Accounting problems

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 $830,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $514,250; land, $299,200; land improvements, $28,050; and four vehicles, $93,500. 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 2013 on the building using the straight-line method, assuming a 15-year life and a $29,000 salvage value.

3.

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

In January 2013, Mitzu Co. pays $2,750,000 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 $720,000, with a useful life of 20 years and an $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $510,000 that are expected to last another 17 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,770,000. The company also incurs the following additional costs:

Cost to demolish Building 1

$

344,400

Cost of additional land grading

185,400

Cost to construct new building (Building 3), having a useful life
of 25 years and a $398,000 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

173,000

Total costs

7,937,299

Required:

1.

Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

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 2013 when these assets were in use.