Question

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Part 1

Required information The following information applies to the questions displayed below) On January 1, Mitzu Co. pays a lump-sum amount of $2,600,000 for land, Building 1, Building 2, and Land Improvements 1 Building 1has no value and will be demolished. Building 2 will be an office and is appraised at $644,000, with a useful life of 20 years and a $60,000 salvage value. Land Improvements 1 is valued at $420,000 and is expected to last another 12 years with no salvage value. The land is valued at $1,736,000. The company also incurs the following additional costs. $ 328.400 175,400 Coat to demolish Building 2 Coat of additional land grading Cost to construct Building 3, having a useful life of 25 years and a 392,000 salvage value Coat of new Land Improvements 2 having a 20-year useful life and no salvage value 2,202,000 164.000 Required: 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column Allocation of Purchase Price Appraised Value Percent of Total Appraised Value Total Cost of Acquisition Apportioned Building 2 Land Improvements Totals Land Building 2 Building 3 Land Land Improvements 1 Improvements 2 Purchase Price Demolition Land grading New building (Construction cost) New improvements Totals 0 $ 0 $ 0 $ 0

Part 2

Part 3

Answer 1

Solution

Mitzu Co

1. Apportioned costs –

Allocation and purchase price	Appraised Value	%	total cost of acquisition	Apportioned Cost
Land	$1,736,000	62%	$2,600,000	$1,612,000
Building 2	$644,000	23%	$2,600,000	$598,000
Land Improvements1	$420,000	15%	$2,600,000	$390,000
Total	$2,800,000	100%	$2,600,000	$2,600,000

2. Cash costs –

	Land	Building 2	Building 3	Land Improvements 1	Land Improvements 2
Purchase price	$1,612,000	$598,000	0	$390,000	0
Demolition	$328,400	0	0	0	0
Land grading	$175,400	0	0	0
Building 3 (Construction cost)0			$2,202,000	0	0
New Improvements Cost0			0	0	$164,000
Totals	$2,115,800	$598,000	$2,202,000	$390,000	$164,000

Entry to record cost of the plant assets, paid in cash:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
1-Jan	Land		$2,115,800
	Building 2		$598,000
	Building 3		$2,202,000
	Land Improvements 1		$390,000
	Land Improvements 2		$164,000
	Cash			$5,469,800
	(To record cost of plant assets paid in cash)

Computations:

Year-end adjusting entry for depreciation expense of Building 2:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec	Depreciation Expense - Building 2		$26,900
	Accumulated Depreciation - Building 2			$26,900
	(To record depreciation expense on Building 2, (598,000 - 60,000)/20 = $26,900)

Year-end adjusting entry for depreciation expense of Building 3:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec	Depreciation Expense - Building 3		$73,400
	Accumulated Depreciation - Building 3			$72,400
	(To record depreciation expense on Building 3, (2,202,000 - 392,000)/25 = $72,400)

Year-end adjusting entry for depreciation expense of Land Improvements 1:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec	Depreciation Expense – Land Improvements 1		$32,500
	Accumulated Depreciation – Land Improvements 1			$32,500
	(To record depreciation expense on Land Improvement 1, (390,000)/12 = $32,500)

Year-end adjusting entry for depreciation expense of Land Improvement 2:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec	Depreciation Expense – Land Improvement 2		$8,200
	Accumulated Depreciation – Land Improvement 2			$8,200
	(To record depreciation expense on Land Improvement 2, (164,000)/20 = $8,200)