In January 2015, Mitzu Co. pays $2,800,000 for a tract of land with two building

Question

In January 2015, Mitzu 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 $720,000, with a useful life of 20 years and a $90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $480,000 that are expected to last another 16 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,800,000. The company also incurs the following additional costs:

     Cost to demolish Building 1$345,400    Cost of additional land grading 195,400    Cost to construct new building (Building 3), having a useful life
    of 25 years and a $400,000 salvage value 2,242,000    Cost of new land improvements (Land Improvements 2) near Building 2     having a 20-year useful life and no salvage value 173,000  
Required:

1.

Allocate the costs incurred by Mitzu to the appropriate columns and total each column. (Round your percentage answers to the nearest whole number.)  

2.

Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2015.

  3.

Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2015 when these assets were in use.

Explanation / Answer

Appraised value of Assets
Land $1,800,000
Building $720,000
Land Improvements $480,000
Total appraised value = $3,000,000 at time of purchase

Cost Allocated to each asset at time of purchase
Land
(1,800,000 / 3,000,000) x 2,800,000 = $1,680,000
Building (2)
(720000 / 3,000,000) x 2,800,000 = $672,000
Land Improvements (1)
(480,1000 / 3,000,000) x 2,800,000 = $448,000

Cost to demolish Building 1 $ 345,400
Add to Land
Cost of additional land grading 195,400
Add to Land
Cost to construct new building (Building 3), having a useful life
of 25 years and a $400,000 salvage value 2,242,000
Add $2,242,000 to Building (3)
Cost of new land improvements (Land Improvements 2) near Building 2
having a 20-year useful life and no salvage value 173,000
Add to Land Improvements (2)

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