Classification of land and buidling costs

 

  (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.      
       
       
    Jan-31 Land and buildings $160,000              
    Feb-28 Cost of removal of building 9,800              
    May-01 Partial payment of new construction 60,000              
    May-01 Legal fees paid 3,770              
    Jun-01 Second payment on new construction 40,000              
    Jun-01 Insurance premium 2,280              
    Jun-01 Special tax assessment 4,000              
    Jun-30 General expenses 36,300              
    July 1 Final payment on new construction 30,000              
    Dec-31 Asset write-up 53,800              
        399,950              
    Dec-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).              
                               
  Instructions                          
  (a)    Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2015.          
  (b)    Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2015.