Question

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 $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. $ 342.488 187,400 Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $482,000 salvage value Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 2,202,80 168, eee Required: 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column. Allocation of purchase price Appraised Value Total cost of acquisition - Apportioned Cost Land $ Percent of Total Appraised Value 61% 26% 18% 105% $ 1,711,000 737,500 501,500 2,950,000 Building 2 Land Improvements 1 Totals 2,800,000 2.800,000 2,800,000 = 1 $ Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price < Prey 2 3 4 of 9 Next >

Answer 1

Solution:

Allocation of Purchase Price	Appraised Value	Percent of Total Appraised Value	×	Total Cost of Acquisition	=	Approtioned Cost
Land	$1,711,000	58%	×	$2,800,000	=	$1,624,000
Building 2	$737,500	25%	×	$2,800,000	=	$700,000
Land Improvements 1	$501,500	17%	×	$2,800,000	=	$476,000
Totals	$2,950,000	100%				$2,800,000

	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	$1,624,000	$700,000		0		$476,000	0
Demolition	$342,400	0		0		0	0
Land grading	$187,400	0		0		0	0
New building (Construction cost)	0	0		$2,202,000		0	0
New Improvements cost	0	0		0		0	$168,000
Totals	$2,153,800	$700,000		$2,202,000		$476,000	$168,000

* $1,711,000/$2,950,000 =58%

$737,500/ $2,950,000 =25%

$501,500/ $2,950,000 =17%