Clinton Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase

Question:

Clinton Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 2011, at a total cash price of $930,000 for a building, land, land improvements, and four trucks. The estimated market values of the assets are building, $469,200; land, $303,600; land improvements, $36,800; and four trucks, $110,400. 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. 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 $30,000 salvage value.
3. Compute the depreciation expense for year 2011 on the land improvements assuming a 5-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.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Question Posted: