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".