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Fixed Assets and Journal Entries

Jackson Company was incorporated on Jan 2 of the current year but did not begin operations until Aug 1 this year. The Land and Building account as of the end of the current fiscal year appears below:

1/31 Land and old building on land $200,000
2/28 Cost of removal of old building $5,000
4/1 Legal fees $6,000
5/1 Fire insurance premium payments $7,200
5/1 Special tax assessments for streets $5,500
5/1 Partial payment for construction of new building $80,000
8/1 Final Payment on building construction $80,000
8/1 General expenses $30,000
12/31 Asset write up to fair market value $150,000

Additional Information:

1. To acquire the land and building on Jan 31, the company paid $100,000 cash and issued 1,000 shares of its common stock. The stock had a par value of $100 per share and a fair market value of $205 per share.

2. Jackson paid Terem Down Destruction Company $5,000 to tear down the old building. It then sold some of the salvaged material for $2,000.

3. Legal fees covered the following:
Cost of organization $2,000
Examination of title to the land $2,500
Legal work in connection with building $1,500

4. The fire insurance premium covered a three-year premium beginning on May 1 of the current year.

5. General expenses covered the following for the period of Jan 2 to Aug 1:
President and CEO's salary $20,000
Supervisor and Construction salary $10,000

6. Because the building was thought to have increased in value, the cost of the building was increased by $150,000.

Using the above information, place the proper amounts into the following proper T account.

Land Building

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Solution Preview

Please see the attached file.

<br>A few issues to keep in mind while solving this problem:
<br>- The acquisition cost of all long-lived assets (such as land & buildings) is their cash-equivalent purchase price, including incidental costs.
<br>- The cost of land includes charges to the purchaser for the cost of land surveys, legal fees, title fees, realtors' commissions, transfer taxes and even the demolition costs of old structures ...

Solution Summary

This solution looks at fixes assets and journal entries into the land and building accounts.