Question

Che (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 $630,000, with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $540,000 and is expected to last another 18 years with no salvage value. The land is valued at $1,830,000. The company also incurs the following additional costs. $ 343,400 191,400 Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 2,282,000 173,000 Problem 8-3A Part 1 lequired: Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Answer 1

1
Allocation of Purchase Price	Appraised Value	Percent of Total Appraised Value	x	Total Cost of Acquisition	=	Apportioned Cost
Land	1,830,000	61%	x	2,650,000	=	1,616,500
Building 2	630,000	21%	x	2,650,000	=	556,500
Land Improvements 1	540,000	18%	x	2,650,000	=	477,000
Totals	3,000,000	100%				2,650,000
	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	1,616,500	556,500		0		477,000	0
Demolition	343,400	0		0		0	0
Land grading	191,400	0		0		0	0
New building (Construction cost)	0	0		2,282,000		0	0
New improvements cost	0	0		0		0	173,000
Totals	2151300	556500		2282000		477000	173000
2
Date	General Journal	Debit	Credit
Jan 1	Land	2,151,300
	Building 2	556,500
	Building 3	2,282,000
	Land improvements 1	477,000
	Land improvements 2	173,000
	Cash		5,639,800
3
Date	General Journal	Debit	Credit
Dec 31	Depreciation expense—Building 2	24,075		=(556500-75000)/20
	Accumulated depreciation—Building 2		24,075
Dec 31	Depreciation expense—Building 3	75,360		=(2282000-398000)/25
	Accumulated depreciation—Building 3		75,360
Dec 31	Depreciation expense—Land improvements 1	26,500		=477000/18
	Accumulated depreciation—Land improvements 1		26,500
Dec 31	Depreciation expense—Land improvements 2	8,650		=173000/20
	Accumulated depreciation—Land improvements 2		8,650