In January 2013, Mitzu Co. pays $2,650,000 for a tract of land with two buildings on it. It plans to demolish Building …..

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    In January 2013, Mitzu Co. pays $2,650,000 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 $823,500, with a useful life of 20 years and an $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $305,000 that are expected to last another 10 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:

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      Cost to demolish Building 1 $ 346,400
      Cost of additional land grading   189,400
      Cost to construct new building (Building 3), having a useful life
    of 25 years and a $402,000 salvage value    		   2,222,000
      Cost of new land improvements (Land Improvements 2) near Building 2     having a 20-year useful life and no salvage value   173,000
      Total costs   7,965,799

     

    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

     

     

    2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.

    Journal Entry Worksheet

    1. Record the costs of the plant assets.

     

     

    Journal Entry Worksheet

     

    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.
    1. Record the year-end adjusting entry for the depreciation expense of Building 2
    2. Record the year-end adjusting entry for the depreciation expense of Building 3
    3. Record the year-end adjusting entry for the depreciation expense of Land Improvements 1
    4. Record the year-end adjusting entry for the depreciation expense of Land Improvements 2.

     

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