The Lump-Sum Purchase Price - Depreciation Expense - Accounting and Finance Assignment Help

Assignment Task:

Question 1
Wearing Out Company recently negotiated a lump-sum purchase of several assets from a road equipment dealer who was planning to change locations. The purchase was completed on March 10, 2018, at a total cash price of $800,000 and included a garage with land and certain land improvements and a new heavy, general-purpose truck. The estimated fair market values of the assets were: garage, $450,000; land, $270,000; land improvements, $135,000; and truck, $45,000. Wearing Out Company’s year-end is December 31.

REQUIRED:
1. Prepare a schedule to allocate the lump-sum purchase price to separate assets that were purchased. Also present the general journal entry to record the purchase.

2. Calculate the 2019 depreciation expense on the garage using the straight-line method and assuming a 15-year life and a $37,500 salvage value.

3. Calculate the 2018 depreciation expense on the land improvements assuming an 8-year life and double-declining-balance depreciation.

4. The truck is expected to last 5 years and has a salvage value of $5,000. Prepare a schedule showing each year's depreciation on the truck, assuming (a) 5-year straight-line depreciation and (b) double-declining-balance depreciation.

Question 2
On January 1, 2018, Birdie purchased a used piece of equipment for $65,000. The next day, it was repaired at a cost of $2,000 and mounted on a new platform that cost $2,400. It was estimated that the equipment would be used for four years and would then have a $9,000 residual value. Depreciation was to be charged on a straight-line basis to the nearest whole month. A full year’s depreciation was charged on December 31, 2018, through December 31, 2019, and on April 1, 2020 the equipment was retired from service.

REQUIRED:
1. Prepare the journal entries to record the purchase of the equipment, the cost of repairing it, and the installation. Assume that cash was paid.

2. Prepare entries to record depreciation on the equipment on December 31, 2018 and on April 1, 2020.

3. Prepare entries to record the retirement of the equipment under each of the following unrelated assumptions:
a) It was sold for $15,000.
b) It was sold for $50,000.

Question 3
On January 1, 2018, Devour & Engulf Co. paid $1,657,500 for the mineral rights to an oil shale deposit containing an estimated 390,000 barrels of oil. The company also installed equipment on the site at a cost of $1,150,500 with no expected salvage value, capable of removing the oil shale in six years. The equipment will be abandoned when the oil shale is completed depleted. The company chooses to use a "Units of Production" approach to depreciate its PPE assets at the site. Devour & Engulf began operations on June 1, and extracted and sold 35,000 barrels of oil during the remaining seven months of the year.

REQUIRED:
Give the entries to record the December 31, 2018 amortization of the oil shale mineral rights and depreciation of the equipment.

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