Classification of land and buidling costs

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 (Classification of Land and Building Costs)          
                
 Spitfire Company was incorporated on January 2, 2015, but was unable to begin manufacturing activities until July 1, 2015, because new factory facilities were not completed until that date. The Land and Buildings account reported the following items during 2015.    
    
    
  Jan-31Land and buildings$160,000       
  Feb-28Cost of removal of building9,800       
  May-01Partial payment of new construction60,000       
  May-01Legal fees paid3,770       
  Jun-01Second payment on new construction40,000       
  Jun-01Insurance premium2,280       
  Jun-01Special tax assessment4,000       
  Jun-30General expenses36,300       
  July 1Final payment on new construction30,000       
  Dec-31Asset write-up53,800       
    399,950       
  Dec-31Depreciation—2015 at 1%4,000       
  December 31, 2015 Account balance$395,950       
                
 The following additional information is to be considered.          
 1.   To acquire land and building, the company paid $80,000 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $117 per share.   
    
 2.  Cost of removal of old buildings amounted to $9,800, and the demolition company retained all materials of the building.   
 3.  Legal fees covered the following.           
  Cost of organization $610       
  Examination of title covering purchase of land 1,300       
  Legal work in connection with construction contract 1,860       
    3,770       
 4.  Insurance premium covered the building for a 2-year term beginning May 1, 2015.      
 5.  The special tax assessment covered street improvements that are permanent in nature.      
 6.  General expenses covered the following for the period from January 2, 2015, to June 30, 2015.      
  President's salary$32,100       
  Plant superintendent's salary—supervision of new building4,200       
   36,300       
 7.   Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $53,800, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.   
    
    
 8.  Estimated life of building—50 years.          
  Depreciation for 2015—1% of asset value (1% of $400,000, or $4,000).       
                
 Instructions             
 (a)   Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2015.     
 (b)   Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2015.    
    • 3 years ago
    Land and building
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      excercise_10-3_spitfire.xlsx