Problem 10-2A Asset cost allocation; straight-line depreciation L.O. C1, P1
[The following information applies to the questions displayed below.]
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In January 2011, Keona Co. pays $2,650,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $780,000, with a useful life of 20 years and an $80,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $330,000 that are expected to last another 11 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,890,000. The company also incurs the following additional costs: |
| Cost to demolish Building 1 | $ | 338,400 |
| Cost of additional land grading | 185,400 | |
| Cost to construct new building (Building 3), having a useful life of 25 years and a $398,000 salvage value |
2,262,000 | |
| Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value |
168,000 | |
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