Spitfire Company was incorporated on January 2,1011, but was unable to begin manufacturing activities until July 1, 2011, because new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2011.
January 31: Land and Building $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
Total: $399,950
December 31: Depreciation-2011 at 1% $4,000
December 31, 2011: 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 market 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 by the following.
Cost of organization: $610
Examination of title covering purchase of land: $1,300
Legal work in connection with construction contract: $1,860
4. Insurance premiums covered the building for a 2-year term beginning May 1, 2011.
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, 2011, to June 30, 2011.
President's salary: $32,100
Plant superintendent's salary-supervision of new building: $4,200
Total: $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 2011: 1% of asset value (1% of $400,000, or $4,000)
a) Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2011.
b) Show the proper presentation of land, building, and depreciation on the balance sheet at December 31, 2011.