Question

Gibbs Manufacturing Co. was incorporated on 1/2/17 but was unable to begin manufacturing activities until 8/1/20...

Gibbs Manufacturing Co. was incorporated on 1/2/17 but was unable to begin manufacturing activities until 8/1/20 because new factory facilities were not completed until that date. The Land and Buildings account at 12/31/20 per the books was as follows:

Date   Item Amount
1/31/20 Land and dilapidated building $172,000
2/28/20 Cost of removing building 3,440
4/1/20 Legal fees 5,160
5/1/20 Fire insurance premium payment 4,644
5/1/20 Special tax assessment for streets 3,870
5/1/20 Partial payment of new building construction 180,600
8/1/20 Final payment on building construction 180,600
8/1/20 General expenses 25,800
12/31/20 Asset write-up 64,500
$640,614

Additional information:

1. To acquire the land and building on 1/31/20, the company paid $86,000 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 $156.
2. When the old building was removed, Gibbs paid Kwik Demolition Co. $3,440, but also received $1,290 from the sale of salvaged material.
3. Legal fees covered the following:
     Cost of organization $2,150
     Examination of title covering purchase of land 1,720
     Legal work in connection with the building construction 1,290
$5,160
4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2020.
5. General expenses covered the following for the period 1/2/20 to 8/1/20.
     President's salary $17,200
     Plant superintendent covering supervision of new building 8,600
$25,800
6. Because of the rising land costs, the president was sure that the land was worth at least $64,500 more than what it cost the company.


Determine the proper balances as of 12/31/20 for a separate land account and a separate buildings account.

Land $

Buildings $

Business   Accounting   
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Answer #1
Land Buildings
Cost of land and dilapidated building* 242000
Cost of removing building 3440
Sale proceeds of salvaged material -1290
Legal fees for title covering purchase of land 1720
Legal fees in connection with building construction 1290
Fire insurance premium ($4644 x 3/36) 387
Partial payment for new building construction 180600
Final payment for new building construction 180600
Plant superintendent covering supervision of new building 8600
Proper balances as of 12/31/20 245870 371477

*$86000 + (1000 x $156) = $86000 + $156000 = $242000

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