Reference no: EM132451551

Problem - Classification of Land and Building Costs

Spitfire Company was incorporated on January 2, 2015, but was unable to begin manufacturing activities until July 1, 2015, because new factory facilities were not completed until that date.

The Land and Buildings account reported the following items during 2015.

January 31	Land and buildings	$160,000
February 28	Cost of removal of building	9,800
May 1	Partial payment of new construction	60,000
May 1	Legal fees paid	3,770
June 1	Second payment on new construction	40,000
June 1	Insurance premium	2,280
June 1	Special tax assessment	4,000
June 30	General expenses	36,300
July 1	Final payment on new construction	30,000
December 31	Asset write-up	53,800
		399,950
December 31	Depreciation-2015 at 1%	(4,000)
December 31, 2015	Account balance	$395,950

The following additional information is to be considered.

1. To acquire land and building, the company paid $80,000 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $117 per share.

2. Cost of removal of old buildings amounted to $9,800, and the demolition company retained all materials of the building.

3. Legal fees covered the following.

Cost of organization	$610
Examination of title covering purchase of land	1,300
Legal work in connection with construction contract	1,860
	$3,770

4. Insurance premium covered the building for a 2-year term beginning May 1, 2015.

5. The special tax assessment covered street improvements that are permanent in nature.

6. General expenses covered the following for the period from January 2, 2015, to June 30, 2015.

President's salary	$32,100
Plant superintendent's salary-supervision of new building	4,200
	$36,300

7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $53,800, 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.

8. Estimated life of building-50 years. Depreciation for 2015-1% of asset value (1% of $400,000, or $4,000).

Required -

1. Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2015.

2. Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2015.