Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase
Question:
Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 2018, at a total cash price of $1,800,000 for a building, land, land improvements, and five trucks. The estimated market values of the assets are building, $890,000; land, $427,200; land improvements, $249,200; and five trucks, $213,600. 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 percents to the nearest 1%). Prepare the journal entry to record the purchase.
2. Compute the depreciation expense for year 2018 on the building using the straight-line method, assuming a 12-year life and a $120,000 salvage value.
3. Compute the depreciation expense for year 2018 on the land improvements assuming a 10-year life and double-declining balance depreciation.
4. Defend or refute this statement: Accelerated depreciation results in payment of more taxes over the asset’s life.
Salvage ValueSalvage 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...
Step by Step Answer:
Financial Accounting Information for Decisions
ISBN: 978-1259917042
9th edition
Authors: John J. Wild