In January 2011, a Keona Company pays $2,800,000 for a tract of land with two bu

Question

In January 2011, a Keona Company pays $2,800,000 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 $641,300 with a useful life of 20 years and $80,000 salvage value. A lighted parking lot near building 1 has improvements (Land Improvements) valued at $408,100 that are expected to last another 14 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,865,600. The company also incurs the following additional costs:

Cost to demolish building 1 $422,600
Cost of additional land grading $167,200
Cost to construct a new building (building3), having a useful life of 25 years and a $390,000 salvage value $2,019,000
Cost of new land improvements (Land Improvements 2) near building 2 having a 20-year useful life and no salvage value $158,000

Required
1. Prepare a table with the following column headings: Land, Building 2, Building 3, Land Improvements 1, and Land Improvements

Explanation / Answer

Appraised value of assests

Land $1,865,600
Building $641,300
land improvement $408,100
Total appraised value = $2,915,000 at time of purchase

========================================

Cost Allocated to each asset at time of purchase
Land
(1,865,600 / 2,915,000) x 2,800,000 = $1,792,000

==============================
Building (2)
(641,300 / 2,915,000) x 2,800,000 = $616,000

==================================
Land Improvements (1)
(408,100 / 2,915,000) x 2,800,000 = $392,000
=============================
Cost to demolish Building 1 $ 422,600
Add to Land
Cost of additional land grading 167,200
Add to Land
Cost to construct new building (Building 3), having a useful life
of 25 years and a $390,100

salvage 2,019,000
Add $2,019,000 to Building (3)
Cost of new land improvements (Land Improvements 2) near Building 2
having a 20-year useful life and no salvage value 158,000
Add to Land Improvements (2)

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