In: Accounting
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. 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. |
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 |