Asset cost allocation; straight-line depreciation LO2 LO4 In January 2010, Mitzu Co. pa...

Asset cost allocation; straight-line depreciation LO2 LO4

In January 2010, Mitzu Co. pays $2,600,000 for a tract of land with two buildings on it. It plans to demolish

Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at

$644,000, with a useful life of 20 years and a $60,000 salvage value. A lighted parking lot near Building

1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 12 years

with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,736,000.

Mitzu also incurs the following additional costs:

Required

1. Prepare a table with the following column headings: Land, Building 2, Building 3, Land Improvements 1,

and Land Improvements 2. Allocate the costs incurred by Mitzu to the appropriate columns and total

each column.

2. Prepare a single journal entry to record the original purchase and all the incurred costs assuming they

are paid in cash on January 1, 2010.

3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for

the 12 months of 2010 when these assets were in use.

Check (1) Land costs, $2,115,800;

Building 2 costs, $598,000

(3) Depr.—Land Improv.

1 and 2, $32,500 and $8,200