Question

Document1 Saved to this PC References Mailings Review View Help ACROBAT OTell me what you want to do Gibbs Manufacturing Co. was incorporated on 1/2/17 but was unable to begin manufacturing activities until 8/1/17 because new factory facilities were not completed unäil that date. The Land and Buildings account at 12/31/17 per the books was as follows Amount $200,000 4,000 6,000 5,400 4,500 210,000 210,000 30,000 75,000 $744,900 Land and dlapidated building 2128/17 Cost of removing building Legal fees Fire insurance premiun payment Special tax assessment for streets Partial payment of new building construction Final payment on building construction General expenses 12/31/17 Asset write-up Additional information 1. To acquire the land and building on 1/31/17, the company paid $100,000 cash and 1,000 shares of its common stock (par value $100/share) which is very actively traded and had a fair value per share of $180 the sale of salvaged material Legal fees covered the following: 2. When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000, but also received $1,500 from 3. Cost of organization Examination of title covering purchase of land $2,500 2,000 Legal work in connection with the building construction $6,000 4. The fire insurance premium covered premiums for a three-year term beginning May 1,2017 5. General expenses covered the following for the period 1/2/17 to 81/17 Plant superintendent covering supervision of new building $20,000 President's salary 530,000 6. 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 Instructions Determine the proper balances as of 12/31/17 for a separate land account and a separate buildings account Use separate T-accounts (one for land and one for buildings) labeling all the relevant amounts and disclosing all computations 12/31/17 for a separate land account and a separate buildings account.

Answer 1

Ans- The balances of land and building account on 12/31/17 should be determined as follows:-  

Land

Cash paid $100,000
FV shares $180,000( 1,000 shares @$180)	$280,000
Removal of old building
Cost-salvage value
$4,000-$1,500	$2,500
Legal fees	$2,000
Special assessment tax	$4,500
Balance	$289,000

Building

Legal fees	$1,500
Partial payment	$210,000
Insurance (3 months) 5,400/3years=1,800*3/12	$450
Final Payment	$210,000
Superintendent salary	$10,000
Balance	$431,950

The T- Accounts should be prepared in the following manner-

Land

Jan.31		$280,000	Feb.		1,500
Feb.28		$4,000
Apr.1		$2,000
May 1		$4,500
Dec.31	Balance	$289,000

Building

Apr.1		$1,500
May 1		$210,000
May.1		$450
Aug. 1		$210,000
Aug.1		$10,000
Dec.31	Balance	$431,950