Spitfire Company was incorporated on January 2, 2011, but was unable to begin manufacturing activities until July 1, 2011, because new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2011.
January 31 Land and building $167,300
February 28 Cost of removal of building 9,810
May 1 Partial payment of new construction 63,300
May 1 Legal fees paid 4,190
June 1 Second payment on new construction 41,200
June 1 Insurance premium 2,304
June 1 Special tax assessment 4,900
June 30 General expenses 37,200
July 1 Final payment on new construction 31,600
December 31 Asset write-up 62,300
December 31 Depreciation-2011 at 1% 4,008
December 31, 2011 Account balance $420,096
The following additional information is to be considered.
To acquire land and building the company paid $85,700 cash and 800 shares of its 8% cumulative preferred stock, par value $102 per share. Fair market value of the stock is $119 per share.Cost of removal of old buildings amounted to $9,810, and the demolition company retained all materials of the building.Legal fees covered the following.Cost of organization $ 690,Examination of title covering purchase of land 1,400.Legal work in connection with construction contract 2,100
$4,190
Insurance premium covered the building for a 2-year term beginning May 1, 2011.
The special tax assessment covered street improvements that are permanent in nature.
General expenses covered the following for the period from January 2, 2011, to June 30, 2011.
President's salary $32,400
Plant superintendent covering supervision of new building 4,800
$37,200
Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $62,300, 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.
Estimated life of building - 50 years.
Depreciation for 2011 - 1% of asset value (1% of $400,800, or $4,008).