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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 $854,000, with a useful life of 20 years and a $90,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $427,000 that are expected to last another 14 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,769,000. The company also incurs the following additional costs:

Cost to demolish Building 1	$	345,400
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		2,202,000
Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value		178,000

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

Answer 1

2
Date	General Journal	Debit	Credit
Jan 1	Land	2,098,800
	Building 2	756,000
	Building 3	2,202,000
	Land improvements 1	378,000
	Land improvements 2	178,000
	Cash		5,612,800
Workings:
Allocation of Purchase Price	Appraised Value	Percent of Total Appraised Value	x	Total Cost of Acquisition	=	Apportioned Cost
Land	1,769,000	58%	x	2,700,000	=	1,566,000
Building 2	854,000	28%	x	2,700,000	=	756,000
Land Improvements 1	427,000	14%	x	2,700,000	=	378,000
Totals	3,050,000	100%				2,700,000
	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price	1,566,000	756,000		0		378,000	0
Demolition	345,400	0		0		0	0
Land grading	187,400	0		0		0	0
New building (Construction cost)	0	0		2,202,000		0	0
New improvements cost	0	0		0		0	178,000
Totals	2098800	756000		2202000		378000	178000