Problem 10-1B

Plant asset costs; depreciation methods

C1 P1

Nagy Company makes a lump-sum purchase of several assets on January 1 at a total cash price of $1,800,000. The estimated market values of the purchased assets are building, $890,000; land, $427,200; land improvements, $249,200; and five trucks, $213,600.

Required

1. Allocate the lump-sum purchase price to the separate assets purchased. Prepare the journal entry to record the purchase.

2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 12-year life and a $120,000 salvage value.

3. Compute the first-year depreciation expense on the land improvements assuming a 10-year life and double-declining-balance depreciation.

Analysis Component

4. Compared to straight-line depreciation, does accelerated depreciation result in payment of less total taxes over the assets life?

Check (2) $65,000

(3) $50,400