Problem 8-1B

Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 2015, 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 2015 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 2015 on the land improvements assuming a 10-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.

Check(2) $65,000 (3) $50,400