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.