Question

Gibbs Manufacturing Co. was incorporated on 1/2/19 but was unable to begin manufacturing

activities until 8/1/17 because new factory facilities were not completed until that date. The Land

and Buildings account at 12/31/19 per the books was as follows:

Date Item Amount

1/31/19 Land and dilapidated building $200,000

2/28/19 Cost of removing building 4,000

4/1/19 Legal fees 6,000

5/1/19 Fire insurance premium payment   5,440

5/1/19 Special tax assessment for streets 4,500

5/1/19 Partial payment of new building construction 190,000

8/1/19 Final payment on building construction 190,000

8/1/19 General expenses 30,000

12/31/19 Asset write-up 75,000

$704,940

Additional information:

1. To acquire the land and building on 1/31/19, 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 $160.

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 $2,000

Examination of title covering purchase of land 2,000

Legal work in connection with the building construction 1,000

$5,000

4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2019.

5. General expenses covered the following for the period 1/2/19 to 8/1/19.

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 (30 points)

Determine the proper balances as of 12/31/19 for a separate land account and a separate

buildings account. Use separate presentation of accounts (one for land and one for buildings)

labeling all the relevant amounts and disclosing all computations.

Answer 1

Calculation of Balances as of 12/31/19 for a separate Land account
Particulars	Amount $
Land and old building	$ 260,000.00		100000(cash)+1000*160(shares)
Removal of old building	$                         2,500.00		4000-1500
Legal fee	$                         2,000.00
Special Assessment	$                         4,500.00
Balance	$ 269,000.00
Calculation of Balances as of 12/31/19 for a separate Building account
Particulars	Amount $
Legal fee	$                         1,000.00		*in additional information
Partial Payment	$ 190,000.00
Insurance	$ 453.33		(5440/36)*3
Suprintendents salary	$                      10,000.00
Final Payment	$ 190,000.00
Balance	$                 3,91,453.33
Note: legal expense in question given as $6,000 but in additional information it showed total for $5,000