In January 2013, Mitzu Co. pays $2,600,000 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 $644,000, with a useful life of 20 years and an $60,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,736,000. The company also incurs the following additional costs:

Cost to demolish Building 1$328,400 Cost of additional land grading 175,400 Cost to construct new building (Building 3), having a useful life of 25 years and a $392,000 salvage value 2,202,000 Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 164,000 Total costs$5,469,800