Gibbs Manufacturing Co was incorporated on 1212 but was unab

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.

Solution

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