Reference no: EM133148397
Question - Gibbs Manufacturing Co. was incorporated on 1/2/20 but was unable to begin manufacturing activities until 8/1/20 because new factory facilities were not completed until that date. On 12/31/20, the "Land and Building" account included the following items:
|
Date
|
Item
|
Amount
|
|
1/31/20
|
Land and old, dilapidated building
|
$200,000
|
|
2/28/20
|
Cost of removing old building
|
4,000
|
|
4/1/20
|
Legal fees
|
3,500
|
|
5/1/20
|
Partial payment of new building construction
|
150,000
|
|
8/1/20
|
Final payment on building construction
|
150,000
|
|
8/1/20
|
Fire insurance premium payment
|
5,400
|
|
8/1/20
|
General expenses
|
30,000
|
|
12/31/20
|
Write-up to fair value as estimated by management
|
75,000
|
|
Total
|
|
$617,900
|
Additional information:
To acquire the land and building on 1/31/20, the company paid $100,000 cash and 1,000 shares of its common stock which is very actively traded and had a market value per share of $160 on the date of the acquisition.
When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000.
Gibbs received $1,500 from the sale of salvaged material on 3/15/20 and recorded the proceeds as "miscellaneous income".
Legal fees covered the following: Examination of title covering the purchase of land $1,500; Legal work in connection with the building construction 2,000; Total $3,500
The fire insurance premium covered premiums for a three-year term beginning 8/1/20.
General expenses covered the following for the period 1/2/20 to 8/1/20: President's salary $20,000, Plant superintendent covering supervision of new building construction 10,000; Total $30,000
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, and wrote the land up to its fair market value.
Required - Assess and correct management's errors and determine the proper balances as of 12/31/20 for two separate accounts: one for "Land" and one for "Building".