In January 2013 Mitzu Co. pays $2800000 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 $600000 with a useful life of 20 years and an $80000 salvage value. A lighted parking
lot near Building 1 has improvements (Land Improvements 1) valued at $630000 that are expected to last another 21 years with no salvage value. Without the
buildings and improvements the tract of land is valued at $1770000. The company also incurs the following additional costs:
Cost to demolish Building 1 $347400
Cost of additional land grading 187400
Cost to construct new building (Building 3) having a useful life of 25 years and a $402000 salvage value 2242000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 178000
1. 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each
column.
Allocation of purchase price
Appraised value
Percent of total appraized value
X
Total cost of acquisition
=
Apportioned cost
Land
x
=
Building 2
x
=
Land improvements 1
x
=
Total
Land
Building 2
Building 3
Land Improvements 1
Land Improvements 2
Purchase Price
Demolition
Land grading
New Building (Construction cost)
New Improvements cost
Totals
1. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1
2013.
a. Record the costs of the plant assets.
2. 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.
a. Record the costs of the plant assets.
b. Record the year-end adjusting entry for the depreciation expense of Building 3
c. Record the year-end adjusting entry for the depreciation expense of Land Improvements 1.
d. Record the year-end adjusting entry for the depreciation expense of Land Improvements 2