Question

Required information Problem 8-3A Asset cost allocation; straight-line depreciation LO C1, P1 (The following information applies to the questions displayed below.] In January 2018, Mitzu Co. pays $2,600,000 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 $720,000, with a useful life of 20 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 14 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,860,000. The company also incurs the following additional costs: $ 341,400 187,400 Cost to demolish Building 1 Cost of additional land grading Cost to construct new building (Building 3), having a useful life of 25 years and a $402,000 salvage value Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 2,262,000 178,000

Answer 1

Date	General Journal	Debit	Credit
Jan 1	Land	2,140,800
	Building 2	624,000
	Building 3	2,262,000
	Land improvements 1	364,000
	Land improvements 2	178,000
	Cash		5,568,800
Workings:
Allocation of Purchase Price	Appraised Value	Percent of Total Appraised Value	x	Total Cost of Acquisition	=	Apportioned Cost
Land	1,860,000	62%	x	2,600,000	=	1,612,000
Building 2	720,000	24%	x	2,600,000	=	624,000
Land Improvements 1	420,000	14%	x	2,600,000	=	364,000
Totals	3,000,000	100%				2,600,000
	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	1,612,000	624,000		0		364,000	0
Demolition	341,400	0		0		0	0
Land grading	187,400	0		0		0	0
New building (Construction cost)	0	0		2,262,000		0	0
New improvements cost	0	0		0		0	178,000
Totals	2140800	624000		2262000		364000	178000