In January 2017, Mitzu Co. pays $2,700,000 for a tract of land with two building

Question

In January 2017, Mitzu Co. pays $2,700,000 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 $660,000, 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 $570,000 that are expected to last another 19 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,770,000. The company also incurs the following additional costs: Part 1 of 3 Cost to demolish Building 1 Cost of additional land grading Cost to construct new building (Building 3),having a useful life of 25 $ 343,400 195,400 2,202,000 178,000 years and a $400,000 salvage value 1.76/2.22 points awarded Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value Scored Required: 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column. Allocation of purchase Appraised Total Total cost of Appraisedacquisition Cost Value 1,770,000 660,000 570,000 3,000,000 59% 22% 19% 100% 2,700,000 2,700,000 2,700,000 159,300 594,000 51,300 x Building 2 Land Totals 804,600 Land Building 2 Building 3 59,300 S 594,000 343,400 95,400 Purchase Price 51,300 Land grading building 2,202,000 cost 178,000 178,000 Totals 698,100 594,000 2,202,000 51,300

Explanation / Answer

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1. Allocation of the cost incurred: Appraised Value % X Total Cost of acquisition = Apportioned Cost Land 1770000 59% X 2700000 = 1593000 Building 2 660000 22% X 2700000 = 594000 Land Improvement 1 570000 19% X 2700000 = 513000 Total 3000000 100% 2700000 Land Building 2 Building 3 Land Improvement 1 Land Improvement 2 Purchase Price 1593000 594000 513000 Demolition 343400 Land grading 195400 New Building 2202000 New Improvments 178000 Total 2131800 594000 2202000 513000 178000 2. Journal Entry Date Account Debit Credit Jan 1 Land 2131800 Building 2 594000 Building 3 2202000 Land Improvement 1 513000 Land Improvement 2 178000 Cash 5618800 Question -4 1A. Total Cost (25015+1635) 26650 Less: Depreciation for 2016 -4900 (26650-2150)/5 Book Value 21750 Less: Revised Salvage Value -2700 Remaing cost to be depreciated 19050 Year of Life remaining 4-1 3 Total Dep for 2017 19050/3 6350 1B. Depreciation for 2016 4900 Depreciation for 2017 6350 Depreciation for 2018 6350 Accumulated Dep 31 Dec 2018 17600 Book value of truck on 31 Dec 2018: Total Cost 26650 Less Accumulated Dep -17600 Book value of truck on 31 Dec 2018 9050 Loss on Truck 5500-9050 -3550 1C. Date Account Debit Credit Jan 1 2016 Truck 26650 Cash 26650 Dec 31 2016 Deprciation Expense-Truck 4900 Accumulated Depreciation - truck 4900 Dec 31 2017 Deprciation Expense-Truck 6350 Accumulated Depreciation - truck 6350 Dec 31 2018 Deprciation Expense-Truck 6350 Accumulated Depreciation - truck 6350 Dec 31 2018 Cash 5500 Cash Received Accumulated Depreciation - truck 17600 Total Dep From 1B Loss on Sale of assets 3550 From 1B Truck 26650 Cost

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