In January 2011, Keona Co. pays $2,800,000 for a tract of land with two building

Question

In January 2011, Keona Co. 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 an $80,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) 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 new building (Building 3), having a useful life
of 25 years and a $390,100 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



Allocate the costs incurred by Keona to the appropriate columns and total each column. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Land Building 2 Building 3 Landimprovements 1 Landimprovements 2


Purchase price $ $ $ $ $
Demolition
Land grading
New building
New improvements





Totals $ $ $ $ $

Explanation / Answer

Allocated cost of Land, Improvements, and Building at time of purchase. Total appraised value =$641,300 + $408,100 + $1,865,600 = 2,915,000 Cost of Building #2= (641,300 / 2,915,000) x 2,800,000 = 616,000 Cost of Land Improvements (1) = (408,100 / 2,915,000) x 2,800,000 = 392,000 Cost of Land= (1,865,600 / 2,915,000) x 2,800,000 = 1,792,000 Total Cost of Land = Cost of land+demolishing+land grading =1,792,000 + 422,600 + 167,200 = 2,381,800 Cost of Land Improvements (1) = 392,000 Cost of Building (2) =616,000 Cost of Building (3) = 2,019,000 Cost of Land Improvements (2) = 158,000 Total Costs = 5,566,800

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