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 $ 900,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $ 508,800; land, $ 297,600; land improvements, $ 28,800; and four vehicles, $ 124,800. 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 per cents 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 15 year life and a $ 27,000 salvage value.
3. Compute the depreciation expense for year 2013 on the land improvements assuming a five year life and double declining balance depreciation. Analysis Component:
4. Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the asset's life.