Question

In January 2017, Mitzu Co. pays $2,700,000 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 $570,000, 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 $570,000 that are expected to last another 19 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,860,000. The company also incurs the following additional costs:

Cost to demolish Building 1	$	346,400
Cost of additional land grading		187,400
Cost to construct new building (Building 3), having a useful life of 25 years and a $398,000 salvage value		2,242,000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value		178,000

Journal entry worksheet

Record the cost of the plant assets, paid in cash.

Answer 1

Record the cost of the plant assets, paid in cash.
Date	General Journal	Debit	Credit
1/1/2017	Land 1 (346400+ 1674000)	2,020,400
	Land 2 (improvement cost)	178,000
	Land 3 (Additional Land Grading)	187,400
	Building 1	513,000
	Building 2	513,000
	Building 3	2,242,000
	Cash		5,653,800

Purchase cost allocation to land and building
Particulars	Land 1	Building 1	Building 2	Total
Appraised Value (X)	1,860,000	570,000	570,000	3,000,000
Ratio (Y = X/$3,000,000)	0.62	0.19	0.19
Allocated Cost (Y x 2,700,000)	1,674,000	513,000	513,000	2,700,000