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 $540,000, with a useful life of 20 years and an $80,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $540,000 that are expected to last another 18 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,920,000. The company also incurs the following additional costs:
|
|
|
| Cost to demolish Building 1 |
$ |
339,400 |
| Cost of additional land grading |
|
187,400 |
Cost to construct new building (Building 3), having a useful life
of 25 years and a $400,000 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 |
|
173,000 |
| Total costs |
|
7,633,799 |
|
|
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.
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