In January 2013, Mitzu Co. pays $2,700,000 for a tract of land with two building
ID: 2581628 • Letter: I
Question
In January 2013, 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 an $90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $549,000 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,921,500. The company also incurs the following additional costs:
Cost to demolish Building 1
$
338,400
Cost of additional land grading
187,400
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
173,000
1.
value:
10.00 points
Required information
Required:
1.
Allocate the costs incurred by Mitzu to the appropriate columns and total each column.
Allocation of purchase price
Appraised Value
Percent of Total Appraised Value
x
Total cost of acquisition
=
Apportioned Cost
Land
x
=
Building 2
x
=
Land Improvements 1
x
=
Totals
Land
Building 2
Building 3
Land Improvements 1
Land Improvements 2
Purchase Price
Demolition
Land grading
New building (Construction cost)
New improvements cost
Totals
2.
Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.
2.Journal entry worksheet
Record the costs of the plant assets.
Note: Enter debits before credits.
Date
General Journal
Debit
Credit
Jan 01
3.
Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2013 when these assets were in use.
Record the year-end adjusting entry for the depreciation expense of Building 2.
Date
General Journal
Debit
Credit
Dec 31
In January 2013, 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 an $90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $549,000 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,921,500. The company also incurs the following additional costs:
Explanation / Answer
Allocation of Purchase Price Appraised Value Percent of Total Appraised Value x Total Cost of Acquisition = Apportioned Cost Land $1,921,500 63.00% x $2,700,000 = $1,701,000 Building 2 579,500 19.00% x 2,700,000 = $513,000 Land Improvements 1 549,000 18.00% x 2,700,000 = $486,000 Totals $ 3,050,000 100% $2,700,000 Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price $1,701,000 $513,000 $0 $486,000 $0 Demolition 338,400 0 0 0 0 Land grading 187,400 0 0 0 0 New building (Construction cost) 0 0 2,282,000 0 0 New improvements cost 0 0 0 0 173,000 Totals $2,226,800 $513,000 $2,282,000 $486,000 $173,000 Date General Journal Debit Credit Jan 01 Land $2,226,800 Building 2 $513,000 Building 3 $2,282,000 Land Improvements 1 $486,000 Land Improvements 2 $173,000 Cash $5,680,800 Date General Journal Debit Credit Dec 31 Depreciation Expense-Building 2 $ 21,150 Accumulated Depreciation-Building 2 $ 21,150 (513000-90000)÷20 = 21150
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