Nagy Company negotiates a lump sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 2013, at a total cash price of $1,800,000 for a building, land, land improvements, and five trucks. The estimated market values of the assets are building, $890,000; land, $427,200; land improvements, $249,200; and five trucks, $213,600. 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 percents 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 12 year life and a $ 120,000 salvage value.
3. Compute the depreciation expense for year 2013 on the land improvements assuming a 10 year life and double declining balance depreciation. Analysis Component:
4. Defend or refute this statement: Accelerated depreciation results in payment of more taxes over the asset's life.