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.

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

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