In its first year of business, Solinger Company purchased land, a building, and equipment on November 5, 2016, for $700,000 in total. The land was valued at $262,500, the building at $337,500, and the equipment at $150,000. Additional information on the depreciable assets follows:

Asset               Residual Value          Useful Life in Years              Depreciation Method

Building…………$15,000……………………60…………………………Straight-line

Equipment………..15,000……………………..8………...Double diminishing-balance

Instructions

(a) Allocate the purchase cost of the land, building, and equipment to each of the assets.

(b) Solinger has a December 31 fiscal year end and is trying to decide how to calculate

Depreciation for assets purchased during the year. Calculate depreciation expense for the building and equipment for 2016 and 2017 assuming:

1. Depreciation is calculated to the nearest month.

2. A half-year's depreciation is recorded in the year of acquisition.

(c) Which policy should Solinger follow in the year of acquisition: recording depreciation to the nearest month or recording a half year of depreciation?

Taking It Further

Suppose that Solinger decided to use the units-of-production depreciation method instead of diminishing-balance for its equipment. How would this affect your answer to part (c) above?