Question: In January 2011, InTech Co. pays $1,350,000 for a tract of land with two buildings. It plans to demolish Building A and build a new shop in its place. Building B will be a company office; it is appraised at $472,770, with a useful life of 15 years and a $90,000 salvage value. A lighted parking lot near Building B has improvements (Land Improvements B) valued at $125,145 that are expected to last another six years with no salvage value. Without the buildings and improvements, the tract of land is valued at $792,585. The company also incurs the following additional costs.
Cost to demolish Building A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,000
Cost of additional land grading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,500
Cost to construct new building (Building C), having a useful life of 20 years
and a $295,500 salvage value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,356,000
Cost of new land improvements (Land Improvements C) near Building C,
having a 10-year useful life and no salvage value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,250
Required: 1. Prepare a table with the following column headings: Land, Building B, Building C, Land Improvements B, and Land Improvements C. Allocate the costs incurred by InTech to the appropriate columns and total each column (round percents to the nearest 1%).
2. Prepare a single journal entry to record all incurred costs assuming they are paid in cash on January 1, 2011.
3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2011 when these assets were in use.