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.
01/31/15 Land and buildings $160,000.00
02/28/15 Cost of removal of buildings $9,800.00
05/01/15 Partial payment of new construction $60,000.00
05/01/15 Legal fees paid $3,770.00
06/01/15 Second payment on new construction $40,000.00
06/01/15 Insurance premium $2,280.00
06/01/15 Special tax assessment $4,000.00
06/30/15 General expenses $36,300.00
07/01/15 Final payment on new construction $30,000.00
12/31/15 Asset write-up $53,800.00
Total:$399,950.00
12/31/15 Depreciation --2015 at 1% -$4,000.00
12/31/15 Account balance $395,950.00
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 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, 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. " (AICPA adapted)