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Straight line depreciation

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Fundamental Accounting Principals, 18th Edition
Wild, Larson, Chiappetta, McGraw-Hill Irwin

Problem 10-1B: Plant asset costs; depreciation methods.

Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January1, 2008, at a total cash price of $1,800,000 for a building, land, land improvements, and five trucks. The estimated market value 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. Prepare the journal entry to record the purchase.

2. Compute the depreciation expense for year 2008 on the building using the straight-line method, assuming a 12-year life and a $120.00 salvage value.

3. Compute the depreciation expense for the year 2008 on the land improvements assuming a 10-year life and a double-declining-balance depreciation.

4. Accelerated depreciation results in payment of more taxes over an assets life. Why is this so?

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Fundamental Accounting Principles, 18th Edition
Wild, Larson, Chiappetta, McGraw-Hill Irwin

Problem 10-1B: Plant asset costs; depreciation methods.

Nagy Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January1, 2008, at a total cash price of $1,800,000 for a building, land, land improvements, and five trucks. The estimated market value of the assets is building, $890,000; land, $427,200; land improvements, $249,200; and five trucks, $213,600. The company's fiscal year ends on December 31. ...

Solution Summary

The solution explains how to calculate depreciation using the straight line method.

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