Fundamental Accounting Principals, 18th Edition
Wild, Larson, Chiappetta, McGraw-Hill Irwin
Problem: Plant asset costs; depreciation methods.
Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January1, 2008, at a total cash price of $1,800,000 for a building, land, land improvements, and five trucks. The estimated market value 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 to do:
Question 1. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. Prepare the journal entry to record the purchase.
Question 2. Compute the depreciation expense for year 2008 on the building using the straight-line method, assuming a 12-year life and a $120.00 salvage value.
Question 3. Compute the depreciation expense for the year 2008 on the land improvements assuming a 10-year life and a double-declining-balance depreciation.
Question 4. Accelerated depreciation results in payment of more taxes over an assets life. Why is this so?