Classification of Land and Building Costs Spitfire Company

was i
Classification of Land and Building Costs Spitfire Company was incorporated on January 2,
2011, 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 $160,000February 28 Cost of
removal of building 9,800May 1 Partial payment of new construction 60,000May1 Legal fees
paid 3,770June 1 Second payment on new construction 40,000June1 Insurance premium
2,280June 1 Special tax assessment 4,000June 30 General expenses 36,300July 1 Final
payment on new construction 30,000December 31 Asset write-up 53,800399,950December 31
Depreciation—2011 at 1% 4,000December 31, 2011 Account balance $395,950The 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
$9800 and the demolition company retained all materials of the building.3. Legal fees covered
the following.Cost of organization $ 610Examination of title covering purchase of land
1,300Legal work in connection with construction contract 1,860$3,7704. Insurance premium
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 $32,100Plant
superintendent’s salary—supervision of new building 4,200$36,3007. 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 were
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.(AICPA adapted)View Solution:
Classification of Land and Building Costs Spitfire Company was i
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