Gabby and the Kickers made a lump-sum purchase of the musical equipment from country music
has-beens Down and Dirty.
Gabby paid a total of $50,000 cash for microphones, amplifiers,
quitars, and a drum set.
The estimated market values of the assets are:
amplifiers, $54,560; guitars, $15,840; and drum set, $13,200 on January 1, 2005 .
fiscal year ends on December 31.
Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.
Prepare the journal entry to record the purchase.
Compute the depreciation expense for year 2005 on the amplifiers using the straight-line
method, assuming a 10-year life and a $5,000 salvage value.
Compute the depreciation expense for year 2005 on the microphones assuming a four-year life
and double-declining-balance depreciation.
Defend or refute this statement: Accelerated depreciation results in payment of less taxes over
the asset’s life.
In January, 2005, Rachel’s Rafts Rental Company paid $750,000 cash for a parcel of waterfront
property complete with a pier and two boats; the “Windwinder” and the “Splasher”.
The plan is
to rent the boats from the pier, which has an appraised value of $188,000, an estimated useful life
of 20 years and a $15,000 salvage value.
The “Windwinder” is unsafe and will be demolished
with some of its electronic equipment moved to the “Splasher” which has an appraised value of
$282,000, an estimated useful life of 7 years, and a $35,000 salvage value.
The land is valued at
$376,000 and has a series of paved paths (Land Improvements) leading from the parking area to
The paths are valued at $94,000, should last 10 years with no salvage value.
Rafts Rental Company incurred the following additional costs:
Cost to demolish the “Windwinder” and move equipment
Cost to install lighting on paths (10-year life, $25,000 salvage value)
Cost to pave parking area (10-year life, no salvage value)
Cost to replace boards on pier (20-year life, no salvage value)
Prepare a table with the following column headings: Land, Land Improvements, Pier, and
Boat. Allocate the costs incurred by Trey’s to the appropriate columns and total each column.