Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below. In January 2017, Mitzu Co. pays $2,700,000 for a tract of land with two buildings on it. It plans to demolish Building1 and build a new store in its place. Building 2 will be a company office; it is appraised at $854,000, with a useful life of 20 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $396,500 that are expected to last another 13 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,799,500. The company also incurs the following additional costs 343,400 Cost to demolish Building 1 Cost of additional land grading Cost to construct new building (Building 3), having a useful life of 25 191,400 2,242,000 173,000 years and a $400,000 salvage valu

Explanation / Answer

Allocation of Purchase Price Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition = Apportioned Cost Land $1,799,500 59% x $2,700,000 = $1,593,000 Building 2 854,000 28% x $2,700,000 = $756,000 Land Improvements 1 396,500 13% x $2,700,000 = $351,000 Totals $3,050,000 100% 2700000 Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price $1,593,000 $756,000 $0 $351,000 $0 Demolition 343,400 0 0 0 0 Land grading 191,400 0 0 0 0 New building (Construction cost) 0 0 2,242,000 0 0 New improvements cost 0 0 0 0 173,000 Totals $2,127,800 $756,000 $2,242,000 $351,000 $173,000

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