Question

Chapter 8 Problems Saved Problem 8-3A Asset cost allocation; straight-line depreciation LO C1, P1 [The following information applies to the questions displayed below] On January 1, Mitzu Co. pays a lump-sum amount of $2,650,000 for land, Building 1, Building 2, and Land Improvements 1 Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $701,500, with a useful life of 20 years and a $85,000 salvage value. Land Improvements 1 is valued at $518,500 and is expected to last another 17 years with no salvage value. The land is valued at $1,830,000. The company also incurs the following additional costs. Pert 3 of 3 s 340,400 Cost to demolish Building 1 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $400,000 salvage value Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 187,400 polnts 2,262,000 178,000 еВook Problem 8-3A Part 3 Ask 3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the first year these assets were in use. Print View transaction list References Journal entry worksheet < 1 3 4 Record the year-end adjusting entry for the depreciation expense of Building 2. Note: Enter debits before credits. General Journal Credit Date Debit Depreciation expense-Building 2 Accumulated depreciation-Building 2 Dec 31

Answer 1

Accounting question - Mitzu & Co
Lump-sum amount paid for all the assets $2,650,000
Lump sum amount will be allocated to various acquired assets based on Fair Market value
	Fair Market value	value of Assets in books	Additional cost incurred	Total Assets value	Salvage value	Useful life	Depreciation
	a	b	c	d=b+c	e	f	g=(d-e)/f
Building 1	-	-		-	-	-	-	Book value NIL
Building 2	7,01,500	6,09,500		6,09,500	85,000	20	26,225
Land Improvements 1	5,18,500	4,50,500		4,50,500	-	17	26,500
Land	18,30,000	15,90,000	1,87,400	17,77,400			-
	30,50,000	26,50,000	1,87,400	28,37,400			52,725
Building 3		22,62,000		22,62,000	4,00,000	25	74,480
Land Improvements 2		1,78,000		1,78,000	-	20	8,900
	-	24,40,000	-	24,40,000			83,380
		50,90,000	1,87,400	52,77,400			1,36,105
Land grading cost is incurred to make the land more useful, hence added to Land cost
Cost of demolishing Building 1 will be treated as Revenue expenses since the Asset value is NIL in the books, having no salvage value
		Debit		Credit
	Building 2	Depreciation Expense	26,225	Accumulated Depreciation	26,225
	Land Improvements 1	Depreciation Expense	26,500	Accumulated Depreciation	26,500
	Building 3	Depreciation Expense	74,480	Accumulated Depreciation	74,480
	Land Improvements 2	Depreciation Expense	8,900	Accumulated Depreciation	8,900
	Total		1,36,105		1,36,105
	Journal Entry work sheet
			Debit	Credit
	31-Dec	Depreciation Expense	26,225
		Accumulated Depreciation		26,225
		Being Depreciation Expense for Building 2
		Journal Entry	Debit	Credit
	31-Dec	Depreciation Expense	74,480
		Accumulated Depreciation		74,480
		Being Depreciation Expense for Building 3
	31-Dec	Depreciation Expense	26,500
		Accumulated Depreciation		26,500
		Being Depreciation Expense for Land Improvements 1
	31-Dec	Depreciation Expense	8,900
		Accumulated Depreciation		8,900
		Being Depreciation Expense for Land Improvements 2