Question

On january 1, mitzu company pays a lump-sum amount of $2,600,000 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 $644,000, with a useful life of 20 years and a $60,000 salvage value. land improvements 1 is valued at $420,000 and is expected to last another 12 years with no salvage value. the land is valued at $1,736,000. 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 $392,000 lvage value cost of new land improvements 2, having a 20-year useful life and salvage value $ 328,400 175,400 2,202,000 164,000 equired: allocate the costs incurred by mitzu to the appropriate columns and total each column.

Answer 1

The costs incurred by Mitzu Company need to be allocated to the acquired assets such as land, buildings, and land improvements. The allocation is based on each asset's appraised value in proportion to the total value, plus additional direct costs. Final totals are $2,239,800 for land, $2,846,000 for buildings, and $584,000 for land improvements.

Step-by-step explanation:

Allocation of Costs for Mitzu Company Assets

The allocation of costs for Mitzu Company involves distributing the lump-sum purchase among the acquired assets based on their fair market values. According to the given values, we will allocate the costs to land, buildings, and land improvements, while considering the additional incurred costs for demolishing Building 1, land grading, construction of Building 3, and new land improvements (Land improvements 2).

• Land is valued at $1,736,000.
• Building 2 is appraised at $644,000 and will be used as an office.
• Land Improvements 1 is valued at $420,000 with no salvage value and a 12-year useful life.
• Additional costs to demolish building 1, grading, and construction of building 3, and land improvements 2 total $2,661,800 ($328,400 + $175,400 + $2,202,000 + $164,000).

To allocate costs, each asset's value is proportioned against the total value of all assets, and this ratio is used to distribute the $2,600,000 initial purchase price. Further costs are added to the respective assets directly, with the demolition costs allocated against the land since Building 1 is of no value and will be demolished.

The final allocation would approximately entail:

• Land: $1,736,000 (purchase) + $328,400 (demolition) + $175,400 (grading) = $2,239,800
• Building 2: $644,000 (purchase) + $2,202,000 (construction of Building 3) = $2,846,000
• Land Improvements: $420,000 (purchase) + $164,000 (new improvements) = $584,000

Total allocated cost sums to $5,669,800, which includes both the initial payment and the additional incurred costs. These calculations provide the basis for subsequent depreciation and amortization entries in the company's accounting records.