In January 2011, Solaris Co. pays $2,650,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $692,530, with a useful life of 20 years and an $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $451,650 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,866,820. Solaris also incurs the following additional costs:
Cost to demolish Building 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 342,400
Cost of additional land grading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,400
Cost to construct new building (Building 3), having a useful life
of 25 years and a $400,000 salvage value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,282,000
Cost of new land improvements (Land Improvements 2) near Building 2
having a 20-year useful life and no salvage value . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,000
Required
1. Prepare a table with the following column headings: Land, Building 2, Building 3, Land Improvements 1, and Land Improvements 2. Allocate the costs incurred by Solaris to the appropriate columns and total each column.
2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on
January 1, 2011.
3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2011 when these assets were in use.