Spitfire Company was incorporated on January 2, 2021, but was unable to begin manufacturing activities until July 1, 2021, because new factory facilities were not completed until that date. The Land and Buildings account reported the following items during 2021. 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 0053,800 399,950 December 31 Depreciation—2021 at 1% 0 (4,000) December 31, 2021 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 Examination of title covering purchase of land Legal work in connection with construction contract $0 610 1,300 01,860 $3,770 4. Insurance premium covered the building for a 2-year term beginning May 1, 2021. 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, 2021, to June 30, 2021. President’s salary Plant superintendent’s salary—supervision of new building $32,100 004,200 $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 2021—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, 2021. b. Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2021.
Spitfire Company was incorporated on January 2, 2021, but was unable to begin manufacturing activities until July 1, 2021, because new factory facilities were not completed until that date.
The Land and Buildings account reported the following items during 2021.
| 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 |
0053,800
|
||
|
399,950
|
||||
| December 31 |
0 (4,000)
|
|||
| December 31, 2021 | 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
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 Examination of title covering purchase of land Legal work in connection with construction contract |
$0 610
1,300 01,860 $3,770 |
4. Insurance premium covered the building for a 2-year term beginning May 1, 2021.
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, 2021, to June 30, 2021.
| President’s salary Plant superintendent’s salary—supervision of new building |
$32,100
004,200 $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.
8. Estimated life of building—50 years.
Depreciation for 2021—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, 2021.
b. Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2021.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
