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| In January 2013, Mitzu Co. pays $2,650,000 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 $823,500, with a useful life of 20 years and an $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $305,000 that are expected to last another 10 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,921,500. The company also incurs the following additional costs: |
| Cost to demolish Building 1 | $ | 346,400 |
| Cost of additional land grading | 189,400 | |
| Cost to construct new building (Building 3), having a useful life of 25 years and a $402,000 salvage value |
2,222,000 | |
| Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value | 173,000 | |
| Total costs | 7,965,799 |
|
Allocation of purchase price |
Appraised value |
Percent of total appraized value |
X |
Total cost of acquisition |
= |
Apportioned cost |
|
Land |
x |
= |
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|
Building 2 |
x |
= |
||||
|
Land improvements 1 |
x |
= |
||||
|
Total |
|
Land |
Building 2 |
Building 3 |
Land Improvements 1 |
Land Improvements 2 |
|
|
Purchase Price |
|||||
|
Demolition |
|||||
|
Land grading |
|||||
|
New Building (Construction cost) |
|||||
|
New Improvements cost |
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Totals |
2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.
Journal Entry Worksheet
- Record the costs of the plant assets.
Journal Entry Worksheet
| Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2013 when these assets were in use. |
- Record the year-end adjusting entry for the depreciation expense of Building 2
- Record the year-end adjusting entry for the depreciation expense of Building 3
- Record the year-end adjusting entry for the depreciation expense of Land Improvements 1
- Record the year-end adjusting entry for the depreciation expense of Land Improvements 2.
