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Item5

Part 2 of 3

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Item 5

Item 5 Part 2 of 3 1.42 points

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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 $660,000, with a useful life of 20 years and a $90,000 salvage value. Land Improvements 1 is valued at $420,000 and is expected to last another 14 years with no salvage value. The land is valued at $1,920,000. The company also incurs the following additional costs.

Cost to demolish Building 1	$	345,400
Cost of additional land grading		189,400
Cost to construct Building 3, having a useful life of 25 years and a $402,000 salvage value		2,202,000
Cost of new Land Improvements 2 having a 20-year useful life and no salvage value		178,000

2. 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. General Journal Debit Credit Date Jan 01 Record entry Clear entry View general journal

Answer 1

2.

Prepare journal entry as follows:

Particulars	Debit	Credit
Land	2230800
Building 2	583000
Building 3	2202000
Land improvements 1	371000
Land improvements 2	178000
Cash		5564800

Working note:

1.

Apportionment of cost:

Allocation of purchase price	Appraised value	%	Total cost of acquisition	Apportioned cost
Land	1920000	64%	2650000	1696000
Building 2	660000	22%	2650000	583000
Land improvements 1	420000	14%	2650000	371000
Totals	3000000			2650000

2.

Total cost of assets:

	Land	Building 2	Building 3	Land improvements 1	Land improvements 2
Purchase price	1696000	583000		371000
Demolition	345400
Land grading	189400
New building			2202000
New improvement cost					178000
Totals	2230800	583000	2202000	371000	178000