Question
In January 2017, Mitzu Co. pays $2,750,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build
In January 2017, Mitzu Co. pays $2,750,000 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 $737,500, with a useful life of 20 years and a $80,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $442,500 that are expected to last another 15 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,770,000. The company also incurs the following additional costs:
Cost to demolish Building 1 | $ | 346,400 | |
Cost of additional land grading | 185,400 | ||
Cost to construct new building (Building 3), having a useful life of 25 years and a $398,000 salvage value | 2,222,000 | ||
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value | 173,000 | ||
2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2017.
3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2017 when these assets were in use.
1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column. Allocation of purchase price Appraised Value Percent of Total Appraised Value Total cost of acquisition Apportioned Cost Land X = X Building 2 Land Improvements 1 Totals Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price Demolition Land grading New building (Construction cost) New improvements TotalsStep by Step Solution
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