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Hohenberger Farms purchased real estate for $1,280,000, which included $5,000 in legal fees. It paid $255,000 cash and incurred a mortgage payable for the balance. The real estate included land that was appraised at $476,000, buildings appraised at $748,000, and fences and other land improvements appraised at $136,000. The buildings have an estimated useful life of 60 years and a

Hohenberger Farms purchased real estate for $1,280,000, which included $5,000 in legal fees. It paid $255,000 cash and incurred a mortgage payable for the balance. The real estate included land that was appraised at $476,000, buildings appraised at $748,000, and fences and other land improvements appraised at $136,000. The buildings have an estimated useful life of 60 years and a $50,000 residual value. Land improvements have an estimated 15-year useful life and no residual value.

Instructions

(a) Calculate the cost that should be allocated to each asset purchased.

(b) Record the purchase of the real estate.

(c) Calculate the annual depreciation expense for the buildings and land improvements assuming Hohenberger Farms uses straight-line depreciation.

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(a) Appraised Value % of Total Cost Allocated Land $ 476,000 35% $ 448,000 Buildings 748,0…View the full answer

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Related Book For answer-question
Accounting Principles Part 2

Accounting Principles Part 2

6th Canadian edition Volume 1

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow

ISBN: 978-1118306796

Related Video

Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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