ACC 421 P10-3
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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 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.
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 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...