Problem 8-2A Asset cost allocation; straight-line depreciation LO C1, P1 [The fo
ID: 2446172 • Letter: P
Question
Problem 8-2A Asset cost allocation; straight-line depreciation LO C1, P1
[The following information applies to the questions displayed below.]
In January 2013, 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 an $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:
1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column.
2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2013.
3. 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.
I will be very grateful for original answer as soon as possible, thanks in advance
In January 2013, 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 an $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:
Explanation / Answer
Question 1. Land Building 3 Building 2 Land Improvement 1 Land Improvement 2 Total Fair Value of property 1,736,000.00 - 644,000.00 420,000.00 - 2,800,000.00 Cost of Purchase 1,612,000.00 - 598,000.00 390,000.00 - 2,600,000.00 Cost to Demolished Building 1 328400 328,400.00 Cost of Additional land grading 175400 175,400.00 Cost of construction 2202000.00 2,202,000.00 Cost of New land improvement 164000.00 164,000.00 Total Value 1,787,400.00 2,530,400.00 598,000.00 390,000.00 164,000.00 5,469,800.00 Solvage Value 0 392000 $ 60,000.00 $ - $ - 452,000.00 Depreciable value 2,138,400.00 538,000.00 390,000.00 164,000.00 useful years of life 25 20 12 20 Annual Depreciation $ 85,536.00 $ 26,900.00 $ 32,500.00 $ 8,200.00 153,136.00 Question 2. Date Account Title Debit Credit Land 1,787,400.00 Building 3,128,400.00 Land Improvement 554,000.00 Cash 5,469,800.00 Question 3. Depreciation Expenses $ 153,136.00 Building $ 112,436.00 Land Improvement $ 40,700.00 Note:Purchase cost of land has been allocated proportionately within land, Building 2 and land improvement 1.