Question

In January 2017, 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 $750,000, with a useful life of 20 years and a $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $360,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,890,000. The company also incurs the following additional costs:

Cost to demolish Building 1 $ 339,400
Cost of additional land grading 191,400
Cost to construct new building (Building 3), having a useful life of 25 years and a $400,000 salvage value 2,302,000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value 168,000

Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Allocation of purchase price	Appraised Value	Percent of Total Appraised Value	x	Total cost of acquisition	=	Apportioned Cost
Land	not attempted	not attempted	x	not attempted	=	not attempted
Building 2	not attempted	not attempted	x	not attempted	=	not attempted
Land Improvements 1	not attempted	not attempted	x	not attempted	=	not attempted
Totals	$0	0%				$0
	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	not attempted	not attempted		not attempted		not attempted	not attempted
Demolition	not attempted	not attempted		not attempted		not attempted	not attempted
Land grading	not attempted	not attempted		not attempted		not attempted	not attempted
New building (Construction cost)	not attempted	not attempted		not attempted		not attempted	not attempted
New improvements	not attempted	not attempted		not attempted		not attempted	not attempted
Totals	$0	$0		$0		$0	$0

2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2017.

3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2017 when these assets were in use.

Answer 1

Answer 1.
Allocation of Purchase Price	Appraised Value	% of Total Appraised Value	X	Total Cost of Acquisition	=	Apportioned Cost
Land	1,890,000.00	63.00%	X	2,600,000.00	=	1,638,000.00
Building 2	750,000.00	25.00%	X	2,600,000.00	=	650,000.00
Land Improvements 1	360,000.00	12.00%	X	2,600,000.00	=	312,000.00
Total	3,000,000.00	100.00%	X	7,800,000.00	=	2,600,000.00

	Land	Building 2	Building 3	Land Improvements 1	Land Improvements 2
Purchase Price	1,638,000.00	650,000.00	-	312,000.00	-
Demolition	339,400.00	-	-	-	-
Land Grading	191,400.00	-	-	-	-
New Building (Construction Cost)	-	-	2,302,000.00	-	-
New Improvements Cost	-	-	-	-	168,000.00
Total	2,168,800.00	650,000.00	2,302,000.00	312,000.00	168,000.00

	Answer 2 & 3.
	Journal Entry
	Date	Particulars	Dr. Amt.	Cr. Amt.
	1/1/2017	Land	2,168,800.00
		Building 2	650,000.00
		Building 3	2,302,000.00
		Land Improvements 1	312,000.00
		Land Improvements 2	168,000.00
		Cash		5,600,800.00
		(record the assets purchased and cost incurred)
	31-Dec-17	Depreciation Expense - Building 2	28,250.00		($650,000 - $85,000) / 20 Years
		Accumulated Depreciation - Building 2		28,250.00	($650,000 - $85,000) / 20 Years
		(record the depreciation exepsne)
	31-Dec-17	Depreciation Expense - Building 3	76,080.00		($2,302,000 - $400,000) / 25 Years
		Accumulated Depreciation - Building 3		76,080.00	($2,302,000 - $400,000) / 25 Years
		(record the depreciation exepsne)
	31-Dec-17	Depreciation Expense - Land Improvements 1	26,000.00		($312,000 - $0) / 12 Years
		Accumulated Depreciation - Land Improvements 1		26,000.00	($312,000 - $0) / 12 Years
		(record the depreciation exepsne)
	31-Dec-17	Depreciation Expense - Land Improvements 2	8,400.00		($168,000 - $0) / 20 Years
		Accumulated Depreciation - Land Improvements 2		8,400.00	($168,000 - $0) / 20 Years
		(record the depreciation exepsne)