Spitfire Company was incorporated on January 2, 2013, but was unable to begin manufacturing activities until July 1, 2013, because new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2013:
January 31 Land and building $164,600
February 28 Cost of removal of building 9,980
May 1 Partial payment of new construction 63,400
May 1 Legal fees paid 4,130
June 1 Second payment on new construction 45,500
June 1 Insurance premium 2,328
June 1 Special tax assessment 4,300
June 30 General expenses 41,500
July 1 Final payment on new construction 32,100
December 31 Asset write-up 55,400
December 31 Depreciation-2013 at 1% 4,069
December 31, 2013 Account balance $419,169
The following additional information is to be considered.
To acquire land and building the company paid $83,000 cash and 800 shares of its 8% cumulative preferred stock, par value $102 per share. Fair market value of the stock is $124 per share.
Cost of removal of old buildings amounted to $9,980, and the demolition company retained all materials of the building.
Legal fees covered the following.
Cost of organization $ 710
Examination of title covering purchase of land 1,320
Legal work in connection with construction contract 2,100
Insurance premium covered the building for a 2-year term beginning May 1, 2013.
The special tax assessment covered street improvements that are permanent in nature.
General expenses covered the following for the period from January 2, 2013, to June 30, 2013.
President's salary $36,700
Plant superintendent covering supervision of new building 4,800
Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $55,400, 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.
Estimated life of building - 50 years.
Depreciation for 2013 - 1% of asset value (1% of $406,900, or $4,069).
Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2013.
The solution provides the exact calculations needed for Spitfire Company, to correct land, building, and depreciation accounts. Full solution is provided.