In January 2009, Solaris Co. pays $2,650,000 for a tract of land with two buildi

Question

In January 2009, Solaris Co. pays $2,650,000 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 $692,530, with a useful life of 20 years and an $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $451,650 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,866,820. Solaris also incurs the following additional costs:


Cost to demolish Building 1 $342,400

Cost of additional land grading $193,400

Cost to construct new building (Building 3), having a useful life of 25 years and a $400,000 salvage value $2,282,000


Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value $168,000

1. Prepare a table with the following headings: Land, Building 2, Building 3, Land Improvements 1, and Land Improvements 2. Allocate the costs incurred by Solaris to the appropriate colums and total each column.
2. Prepare a single journal entry to record all the incurred cost assuming they are paid in cash on January 1, 2009
3. Using straigt-line method, prepare the Dec. 31 adjusting entries to record depreciation for the 12 months of 2009 when these assets were in use.
I've got two different books here, and I don't even know where to start!

Explanation / Answer

I would begin by allocating the $2,650,000 purchase price over the appraised or stated value of its components. Bldg 2 = 23%, Parking lot = 15%, Land = 62%.

The original cost allocated then is Land $1,643,000, Bldg 2 $609,500, and Parking lot for Bldg 1 $397,500, totaling $2,650,000.

Total Bldg 3 = $342,400 + additional grading of $193,400 + construction cost of $2,282,000, or a total of $2,817,800.

Additional Land Imprvmts near Bldg 2 = $168,000

i dont know if this is helpful to you or not

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