Question

Required 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 $701,500, with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $549,000 and is expected to last another 18 years with no salvage value. The land is valued at $1,799,500. 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 Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 341,400 189,400 $402,000 salvage value 2,242,000 178,000

Answer 1

Mitzu CO.
Allocation of Purchase Price	Appraised Value	Percent of	x	Total Cost of	=	Apportioned Cost
		Total Appraised Value		Acquisition
Land	$1,799,500	59%	x	$2,800,000	=	$1,652,000
Building 2	$701,500	23%	x	$2,800,000	=	$644,000
Land Improvements 1	$549,000	18%	x	$2,800,000	=	$504,000
Totals	$3,050,000	100%				$2,800,000

	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	$1,652,000	$644,000		$0		$504,000	$0
Demolition	$341,400	$0		$0		$0	$0
Land grading	$189,400	$0		$0		$0	$0
New building (Construction cost)	$0	$0		$2,242,000		$0	$0
New improvements cost	$0	$0		$0		$0	$178,000
Totals	$2,182,800	$644,000		$2,242,000		$504,000	$178,000