0 Required information The following information applies to the questions displa

Question

0 Required information The following information applies to the questions displayed below 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 $579,500, with a useful life of 20 years and a $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1 valued at $518,500 that are expected to last another 17 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,952,000. The company also incurs the following additional costs: Cost to demolish Building 1 Cost of additional land grading Cost to construct new building Building 3), having a useful life of 25 339,400 193,400 2,222,000 173,000 years and a $398,000 salvage value Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value

Explanation / Answer

Allocation of Purchase Price Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition = Apportioned Cost Land $1,952,000 64.00% x $2,700,000 = $1,728,000 Building 2 579,500 19.00% x 2,700,000 = $513,000 Land Improvements 1 518,500 17.00% x 2,700,000 = $459,000 Totals $           3,050,000 100% $2,700,000 Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price $1,952,000 $579,500 $0 $518,500 $0 Demolition 339,400 0 0 0 0 Land grading 193,400 0 0 0 0 New building (Construction cost) 0 0 2,222,000 0 0 New improvements cost 0 0 0 0 173,000 Totals $2,484,800 $579,500 $2,222,000 $518,500 $173,000 Account titles Debit Credit Land $2,484,800 Building 2 $579,500 Building 3 $2,222,000 Land Improvements 1 $518,500 Land Improvements 2 $173,000 Cash $5,977,800

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