Required information Problem 8-3A (Algo) Asset cost allocation; straight-line depreciation LO C1, P1 [The following information applies to the questions displayed below.] On January 1, Mitzu Company 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 $854,000, with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $244,000 and is expected to last another 8 years with no salvage value. The land is valued at $1,952,000. The company also incurs the following additional costs. Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value Cost of new Land Improvements 2, having a 20-year useful life and no salvage value $ 346,400 191,400 2,242,000 173,000
Required information Problem 8-3A (Algo) Asset cost allocation; straight-line depreciation LO C1, P1 [The following information applies to the questions displayed below.] On January 1, Mitzu Company 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 $854,000, with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $244,000 and is expected to last another 8 years with no salvage value. The land is valued at $1,952,000. The company also incurs the following additional costs. Cost to demolish Building 1 Cost of additional land grading Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value Cost of new Land Improvements 2, having a 20-year useful life and no salvage value $ 346,400 191,400 2,242,000 173,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Topic Video
Question
Oo. 68.
Subject ;- Account
![Required information
Problem 8-3A (Algo) Asset cost allocation; straight-line depreciation LO C1, P1
[The following information applies to the questions displayed below.]
On January 1, Mitzu Company 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 $854,000,
with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $244,000 and is expected to
last another 8 years with no salvage value. The land is valued at $1,952,000. The company also incurs the following
additional costs.
Cost to demolish Building 1
Cost of additional land grading.
Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value
Cost of new Land Improvements 2, having a 20-year useful life and no salvage value.
$ 346,400
191,400
2,242,000
173,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5a79f5fd-2bdd-484b-9c0d-a83d48b55247%2Fb43723f1-26af-4d84-967c-72ce518ee9e0%2Fxem7ic_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
Problem 8-3A (Algo) Asset cost allocation; straight-line depreciation LO C1, P1
[The following information applies to the questions displayed below.]
On January 1, Mitzu Company 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 $854,000,
with a useful life of 20 years and a $80,000 salvage value. Land Improvements 1 is valued at $244,000 and is expected to
last another 8 years with no salvage value. The land is valued at $1,952,000. The company also incurs the following
additional costs.
Cost to demolish Building 1
Cost of additional land grading.
Cost to construct Building 3, having a useful life of 25 years and a $398,000 salvage value
Cost of new Land Improvements 2, having a 20-year useful life and no salvage value.
$ 346,400
191,400
2,242,000
173,000
Transcribed Image Text:Problem 8-3A (Algo) Part 1
Required:
1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column.
Allocation of Purchase Price
Land
Building 2
Land Improvements 1
Totals
Purchase Price
Demolition
Land grading
New building (Construction cost)
New improvements
Totals
Appraised
Value
$
$
$
1,952,000
854,000
244,000
3,050,000
Land
Percent of
Total
Appraised
Value
$
0 $
64%
28% *
8% X
100%
Building 2
770,000
Total cost of
acquisition
$ 2,750,000.
2,750,000
2,750,000
770,000 $
Building 3
=
.
B
2,242,000
$
Apportioned Cost
Land
Improvements 1
2,242,000 $
0
Land
improvements 2
$
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