Question

In: Accounting

Problem 10-3 Concord Company was incorporated on January 2, 2018, but was unable to begin manufacturing...

Problem 10-3

Concord Company was incorporated on January 2, 2018, but was unable to begin manufacturing activities until July 1, 2018, because new factory facilities were not completed until that date.

The Land and Buildings account reported the following items during 2018.

January 31 Land and building

$162,500

February 28 Cost of removal of building

9,964

May 1 Partial payment of new construction

63,950

May 1 Legal fees paid

4,490

June 1 Second payment on new construction

40,600

June 1 Insurance premium

2,280

June 1 Special tax assessment

4,130

June 30 General expenses

38,413

July 1 Final payment on new construction

32,950

December 31 Asset write-up 56,442

415,719

December 31 Depreciation-2018 at 1% (3,773 )
December 31, 2018 Account balance $411,946


The following additional information is to be considered.

1. To acquire land and building, the company paid $82,500 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $126 per share.
2. Cost of removal of old buildings amounted to $9,964, and the demolition company retained all materials of the building.
3. Legal fees covered the following.
Cost of organization

$650

Examination of title covering purchase of land

1,640

Legal work in connection with construction contract

2,200

$4,490

4. Insurance premium covered the building for a 2-year term beginning May 1, 2018.
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, 2018, to June 30, 2018.
President’s salary

$34,412

Plant superintendent’s salary-supervision of new building

4,001

$38,413

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 $56,442, 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 2018-1% of asset value (1% of $377,300, or $3,773).

Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2018.

(its twelve entries total)

and: Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2018.

Solutions

Expert Solution

Part A

No.

Account titles and explanation

debit

Credit

1

Land

199034

Buildings

143891

Insurance expense (6*95)

570

Prepaid insurance (16*95)

1520

Organization expense

650

Retained earnings

56442

Salary expense

34412

Land and buildings (balancing figure)

415719

Share premium preference (800*26)

20800

2.

Land and buildings

3773

Depreciation expense

2334

Accumulated depreciation - building

1439

Schedule A

Amount consist of:

Acquisition cost (82500+(800*126))

183300

Removal of old building

9964

Legal fees (examination of title)

1640

Special tax assessment

4130

Total

199034

Schedule A

Amount consist of:

Legal fees (construction contract)

2200

Construction costs (first payment)

63950

Construction costs (second payment)

40600

Insurance (2 months) (2280/24*2)

190

Plant superintendent’s salary

4001

Construction costs (final payment)

32950

total

143891

Schedule C

Depreciation taken

3773

Depreciation that should be taken (143891*1%)

(1439)

Depreciation adjustment

2334

Part B

Balance sheet

Plant, property and equipment

Land

199034

Buildings

143891

Less: accumulated depreciation

(1439)

142452

Total

341486


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