Chapter 10, Problem 3BPSB

Problem 10-3B

Asset cost allocation; straight-line depreciation

C1

P1

In January 2017, ProTech Co. pays $1,550,000 for a tract of land with two buildings. It plans to demolish Building A and build a new shop in its place. Building B will be a company office; it is appraised at $482,800, with a useful life of 15 years and a $99,500 salvage value. A lighted parking lot near Building B has improvements (Land Improvements B) valued at $142,000 that are expected to last another five years with no salvage value. Without the buildings and improvements, the tract of land is valued at $795,200. The company also incurs the following additional costs.

Cost to demolish Building A	$ 122,000
Cost of additional land grading	174,500
Cost to construct new budding (Building C), having a useful life of 20 years
and a $258,000 salvage value	1,458,000
Cost of new land Improvements (Land improvements C) near Budding C.
having a 10-year useful life and no salvage value	103,500

Required

1. Prepare a table with the following column headings: Land, Building B, Building C, Land Improvements B, and Land Improvements C. Allocate the costs incurred by ProTech to the appropriate columns and total each column (round percents to the nearest 1%).
2. Prepare a single journal entry to record all incurred costs assuming they are paid in cash on January 1, 2017.
3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2017 when these assets were in use.

Check

(1) Land costs, $1164500, Building B costs, $527000

(3) Depr -Land lmprov. B and C, $31000 and $10,350