Question

Requirea information [The following information applies to the questions displayed below.) On January 1, Mitzu Co. pays a lump-sum amount of $2.800,000 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 $737,500, with a useful life of 20 years and a $85,000 salvage value. Land Improvements 1 is valued at $501,500 and is expected to last another 17 years with no salvage value. The land is valued at $1,711,000. The company also incurs the following additional costs. $ 342,400 187,480 Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $402, eee salvage value Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 2,202, eee 168,000 3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the first year these assets were in use. View transaction list Journal entry worksheet 2 3 4 Record the year-end adjusting entry for the depreciation expense of Building

Answer 1

Allocate the lump-sum amount paid to Building 2, Land Improvement 1, and Land as follows:
	Appraised Value	Percent of Total Appraised Value	Lump-sum amount paid	Allocated cost
Land	1711000	58%	2800000	1624000
Building 2	737500	25%	2800000	700000
Land Improvements 1	501500	17%	2800000	476000
Total	2950000	100%		2800000
Determine the amount to be recorded as the cost of each asset as follows:
	Land	Building 2	Building 3	Land Improvements 1	Land Improvements 2
Allocated cost	1624000	700000		476000
Cost to demolish Building 1	342400
Land grading cost	187400
Cost to construct Building 3			2202000
Cost of Land Improvements 2					168000
Total cost to be recorded85	2153800	700000	2202000	476000	168000

Prepare the required journal entries as follows:
1. Record the year-end adjusting entry for depreciation expense of Building 2.
Date	General Journal	Debit	Credit
Dec. 31	Depreciation expense (700000-85000)/20	30750
	Accumulated Depreciation - Building 2		30750
2. Record the year-end adjusting entry for depreciation expense of Building 3.
Date	General Journal	Debit	Credit
Dec. 31	Depreciation expense (2202000-402000)/25	72000
	Accumulated Depreciation - Building 3		72000
3. Record the year-end adjusting entry for depreciation expense of Land Improvements 1.
Date	General Journal	Debit	Credit
Dec. 31	Depreciation expense (476000/17)	28000
	Accumulated Depreciation - Land Improvements 1		28000
4. Record the year-end adjusting entry for depreciation expense of Land Improvements 2.
Date	General Journal	Debit	Credit
Dec. 31	Depreciation expense (168000/20)	8400
	Accumulated Depreciation - Land Improvements 2		8400