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
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Allocation of purchase price
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Appraised value
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Percent of total appraized value
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X
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Total cost of acquisition
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=
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Apportioned cost
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Land
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x
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Building 2
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x
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Land improvements 1
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x
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=
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Total
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Land
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Building 2
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Building 3
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Land Improvements 1
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Land Improvements 2
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Purchase Price
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Demolition
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Land grading
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New Building (Construction cost)
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New Improvements cost
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Totals
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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-
A. 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.
A. Record the year-end adjusting entry for the depreciation expense of Building 2.
B. Record the year-end adjusting entry for the depreciation expense of Building 3.
C. Record the year-end adjusting entry for the depreciation expense of Land Improvements 1
D. Record the year-end adjusting entry for the depreciation expense of Land Improvements 2.