In January 2015, 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 $644,000 with a useful life of 20 years and a $60,000 salvage value. A lighted parking lot near building 1 has improvements (Land Improvements 1) valued at $420,000 that are expected to last another 12 years with no salvage value. Without the buildings and improvements, the tract of land is valued at 1,736,000. The company also incurs the following additional costs:
Cost to demolish building 1 – $328,400
Cost of additional land grading – $175,400
Cost to construct new building (building 3), having a useful life of 25 years and a $392,000 salvage value – $2,202,000
Cost of new land improvements (Land Improvements 2) near building 2 having a 20 year life and no salvage value – $164,000
1. Prepare a table with the following column headings: Land, Building 2, Building 3, Land Improvements 1, and Land Improvements 2. Allocate the costs incurred by Mitzu to the appropriate columns and total each column (round to nearest 1%).
2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2015.
2. Using the Straight- Line Method, prepare the December 31 adjusting entries to record depreciation for the 12 months pf 2015 when these assets were in use.
Solution:Part 1:Purchase Price Purchase PriceCost of DemolishCost of Additional Land GradingCost of Construction of New BuildingCost of New Land Improvements Allocation of CostLandBuilding…
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