Question

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. 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 $ 342,400 187,400 2,202,000 168,000 - Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1. View transaction list Journal entry worksheet Record the cost of the plant assets, paid in cash. Note: Enter debits before credits.

Answer 1

Prepare journal entries as follows: Credit General Journal Date Account name Jan. 01 Land Building 2 Building 3 Land improvements 1 Land improvements 2 Cash | Debit $2,153,800 $700,000 $2.202.000 S476.000 $168,000 $5,699,800 Working as follows:

Allocation of Purchase price Appraised value (A) % of Total Appraised value (B) 58% 25% 17% 100% Total Cost of Acquisition (C) $2,800,000 $2.800,000 $2.800,000 $1,711,000 Apportioned Cost | D=BAC] $1,624.000 $700,000 $476,000 $2,800,000 Land Building 2 Land Improvement 1 Totals S737,500 $501,500 $2,950,000 Building 3 Building 2 $700,000 Land Land Improvement 1 Improvement 2] $476,000 Land $1,624,000 $342.400 $187.400 Purchase Price Demolition land grading New building [construction cost] New Improvements Total $2,202,000 $168,000 $168,000 $2,153,800 $700,000 $2,202,000 $476,000