P10-3B (Classification of Land and Building Costs) Smith 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 Building account reported the following items during 2015. 2 3 5 January 31 Land and building $290,000 February 16 Cost of removal of building 26,000 March 1 Partial payment of new construction 75,000 May 1 Legal fees paid 3,600 June 1 Second payment on new construction 75,000 June 1 Insurance premium 2,880 June 30 General expenses 58,400 July 1 Final payment on new construction 150,000 July 1 Special tax assessment 6,000 December 31 Asset write-up 13,120 700,000 December 31 Depreciation-2015 at 1.25% 8,750 December 3, 2015 Account Balance $691,250 The following additional information is to be considered. 1. To acquire land and building, the company paid $50,000 cash and 2,400 shares of its 5% cumulative preferred stock, par value $100 per share. Fair value of the stock is $102 per share. 2. Cost of removal of old buildings amounted to $26,000, and the demolition company retained all materials of the building. c10BProblems.indd Page 2 28/01/13 8:18 PM f-389 10BProblems.indd Page 2 28/01/13 8:18 PM f-389 /208/WB00806_ONL/XXXXXXXXXXXXX/ch10/text_s 208/WB00806_ONL/XXXXXXXXXXXXX/ch10/text_s B Problems 3 3. Legal fees covered the following. Cost of organization $ 800 Examination of title covering purchase of land 1,100 Legal work in connection with construction contract 1,700 $3,600 4. Insurance premium covered the building for a 1-year term beginning June 1, 2015. 5. The special tax assessment covered drainage improvements that are permanent in nature. 6. General expenses covered the following for the period from January 2, 2015, to June 30, 2015. Presidents salary $36,000 Plant superintendents salarysupervision of new building 10,400 Rent 12,000 $58,400 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 $13,120, believing that such an increase was justified to reflect the current market at the trime the building was completed. Retained earnings was credited for this amount. 8. Estimated life of building40 years. Depreciation for 20151.25% of asset value (1.25% of $700,000, or $8,750). Instructions (a) Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2015. (b) Show the proper presentation of land, building, and depreciation on the balance sheet at December

*** Please answer question A, B please.

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