Question

On January 1, Mitzu Co. pays a lump-sum amount of $2,750,000 for land, Building 1, Building 2, and Land Improvements 1. Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $796,500, with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $413,000 and is expected to last another 14 years with no salvage value. The land is valued at $1,740,500. The company also incurs the following additional costs. Cost to demolish Building 1 $ 346,400 Cost of additional land grading 193,400 Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value 2,262,000 Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 168,000 Problem 8-3A Part 2 2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1.

Answer 1

Answer:

January 1, 202x

Dr Land 2,162,109

Dr Building 2,  742,626

Dr Building 3, 2,262,000

Dr Land improvement 1, 385,065

Dr Land improvement 2, 168,000

    Cr Cash 5,719,800

Explanation:

total purchase cost $2,750,000

Building 2 = $796,500

Land improvement 1 = $413,000

Land = $1,740,000

total = $2,949,500

proportional purchase cost building 2 = $2,750,000 x $796,500/$2,949,500 = $742,626

proportional purchase cost land = $2,750,000 x $1,740,000/$2,949,500 = $1,622,309

proportional purchase cost land improvements 1 = $2,750,000 x $416,000/$2,949,500 = $385,065

additional costs to land = $346,400 + $193,400 = $539,800

additional building 3 = $2,262,000

additional land improvement 2 $168,000

January 1, 202x

Dr Land 2,162,109

Dr Building 2,  742,626

Dr Building 3, 2,262,000

Dr Land improvement 1, 385,065

Dr Land improvement 2, 168,000

    Cr Cash 5,719,800