On January 1, Year 1, Phillips Company made a basket purchase including land, a building and equipment for $850,000. The appraised values of the assets are $58,000 for the land, $860,000 for the building and $152,000 for equipment. Phillips uses the double-declining-balance method of depreciation for the equipment which is estimated to have a useful life of four years and a salvage value of $10,000. The depreciation expense for Year 1 for the equipment is: (Round your intermediate percentages to 2 decimal places: ie .054231 = 5.42%.)

Question

Quizplus · Accepted Answer

First, allocate the purchase price based on the appraised values. Total appraised value = $58,000 (land) + $860,000 (building) + $152,000 (equipment) = $1,070,000. The equipment's percentage of the total appraised value is $152,000 / $1,070,000 = 14.21%. Thus, the cost allocated to the equipment is 14.21% of $850,000 = $120,785. The double-declining balance depreciation rate for equipment with a 4-year life is 50% per year. Year 1 depreciation = 50% of $120,785 = $60,393.

On January 1, Year 1, Phillips Company Made a Basket