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P10-3 (Classification of Land and Building Costs) Spitfire company was incorporated on January 2, 2015, but was unable to begin manufacturing activites until July 1,
P10-3 | ||||
(Classification of Land and Building Costs) | ||||
Spitfire company was incorporated on January 2, 2015, but was unable to begin manufacturing activites until July 1, 2015, because | ||||
new factory facilites were not completed until that date. | ||||
The Land and Building account reported the following items during 2015. | ||||
January 31 | Land and buildings | $160,000 | ||
February 28 | Cost of removal of building | 9,800 | ||
May 1 | Partial payment of new construction | 60,000 | ||
May 1 | Legal fees paid | 3,770 | ||
June 1 | Second payment on new construction | 40,000 | ||
June 1 | Insurance premium | 2,280 | ||
June 1 | Special tax assessment | 4,000 | ||
June 30 | General expenses | 36,300 | ||
July 1 | Final payment on new construction | 30,000 | ||
December 31 | asset write-up | 53,800 | ||
$399,950 | ||||
December 31 | Depreciation-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 | 1300 | |||
Legal work in connection with construction contract | 1860 | |||
$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 building | 4,200 | |||
$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, beleiving 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. | ||||
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