Question

Gibbs Manufacturing Co. was incorporated on 1/2/12 but was unable to begin manufacturing activities until 8/1/12 because new factory facilities were not completed until that date. The Land and Buildings account at 12/31/12 per the books was as follows:

Date                                 Item                                                                              Amount

1/31/12            Land and dilapidated building                                                          $200,000

2/28/12            Cost of removing building                                                                      4,000

4/1/12              Legal fees                                                                                              6,000

5/1/12              Fire insurance premium payment                                                          5,400

5/1/12              Special tax assessment for streets                                                       4,500

5/1/12              Partial payment of new building construction                                    170,000

8/1/12              Final payment on building construction                                             170,000

8/1/12              General expenses                                                                               30,000

12/31/12          Asset write-up                                                                                      75,000

                                                                                                                                 $664,900

Additional information:

1.   To acquire the land and building on 1/31/12, the company paid $100,000 cash and 1,000 shares of its common stock (par value = $100/share) which is very actively traded and had a fair value per share of $140.

2.   When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000, but also received $1,500 from the sale of salvaged material.

3.   Legal fees covered the following:

            Cost of organization                                                                                               $2,500

            Examination of title covering purchase of land                                                       2,000

            Legal work in connection with the building construction                                       1,500

                                                                                                                                           $6,000

4.   The fire insurance premium covered premiums for a three-year term beginning May 1, 2012.

5.   General expenses covered the following for the period 1/2/12 to 8/1/12.

            President's salary                                                                                                $20,000

            Plant superintendent covering supervision of new building                                10,000

                                                                                                                                         $30,000

6.   Because of the rising land costs, the president was sure that the land was worth at least $75,000 more than what it cost the company.

Instructions

Determine the proper balances as of 12/31/12 for a separate land account and a separate buildings account. Use separate T-accounts (one for land and one for buildings) labeling all the relevant amounts and disclosing all computations.

Answer 1

Land
Land and building
cash paid   100000
Fv shares    140000	240000
Removal of old building
cost-salvage
4000-1500	2500
Legal fees	2000
Special assessment tax	4500
Balance	2,49,000
Building
Legal fees	1500
Partial payment	170000
Insurance (3 months)	450	5400/3 yrs = 1800	1800/12*3=450	for may to july
Final payment	170000
superintendent salary	10000
Balance	3,51,950
point 1. considered
2. considered
3. legal fees of cost of organisation will not be included in land or building
4. considered
5. Presidents salary will not be considered for land and building
6. not be considered here