Blossom Company purchased real estate for $1,165,000, which included $6,200 in legal fees. It paid $256,000 cash and incurred a mortgage payable for the balance. The real estate included land that was appraised at $476,700, a building appraised at $762,720, and fences and other land improvements appraised at $122,580. The building has an estimated useful life of 60 years and a $56,000 residual value. Land improvements have an estimated 15-year useful life and no residual value. Calculate the cost that should be allocated to each asset purchased. Record the purchase of the real estate.
Blossom Company purchased real estate for $1,165,000, which included $6,200 in legal fees. It paid $256,000 cash and incurred a mortgage payable for the balance. The real estate included land that was appraised at $476,700, a building appraised at $762,720, and fences and other land improvements appraised at $122,580. The building has an estimated useful life of 60 years and a $56,000 residual value. Land improvements have an estimated 15-year useful life and no residual value. Calculate the cost that should be allocated to each asset purchased. Record the purchase of the real estate.
Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion
Section: Chapter Questions
Problem 56P
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Blossom Company purchased real estate for $1,165,000, which included $6,200 in legal fees. It paid $256,000 cash and incurred a mortgage payable for the balance. The real estate included land that was appraised at $476,700, a building appraised at $762,720, and fences and other land improvements appraised at $122,580. The building has an estimated useful life of 60 years and a $56,000 residual value. Land improvements have an estimated 15-year useful life and no residual value.
Calculate the cost that should be allocated to each asset purchased.
Record the purchase of the real estate.
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