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 $690,000, with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $450,000 and is expected to last another 15 years with no salvage value. The land is valued at $1,860,000. The company also incurs the following additional costs. Cost to demolish Building 1 $ 339,400 Cost of additional land grading 185,400 Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value 2,202,000 Cost of new Land Improvements 2 having a 20-year useful life and no salvage value 178,000 Required: 1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column. Allocation of purchase price Appraised Value Percent of Total Appraised Value x Total cost of acquisition = Apportioned Cost Land x = Building 2 x = Land Improvements 1 x = Totals $0 0% $0 Land Building 2 Building 3 Land Improvements 1 Land Improvements 2 Purchase Price Demolition Land grading New building (Construction cost) New improvements Totals $0 $0 $0 $0 $0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $690,000, with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $450,000 and is expected to last another 15 years with no salvage value. The land is valued at $1,860,000. The company also incurs the following additional costs.


Cost to demolish Building 1	$	339,400
Cost of additional land grading		185,400
Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value		2,202,000
Cost of new Land Improvements 2 having a 20-year useful life and no salvage value		178,000

Required:

1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Allocation of purchase price	Appraised Value	Percent of Total Appraised Value	x	Total cost of acquisition	=	Apportioned Cost
Land			x		=
Building 2			x		=
Land Improvements 1			x		=
Totals	$0	0%				$0

	Land	Building 2		Building 3		Land Improvements 1	Land Improvements 2
Purchase Price
Demolition
Land grading
New building (Construction cost)
New improvements
Totals	$0	$0		$0		$0	$0

Expert Solution

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Given that:

Lump sum payment for Land, Buildings and for Land improvements = $27,50,000

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