Problem 10-3 (Part Level Submission) Spitfire Company was incorporated on Januar

Question

Problem 10-3 (Part Level Submission) 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 Building account reported the following items during 2015. January 31 Land and building $161,800 February 28 Cost of removal of building 9,860 May 1 Partial payment of new construction 62,300 May 1 Legal fees paid 4,470 June 1 Second payment on new construction 43,700 June 1 Insurance premium 2,328 June 1 Special tax assessment 4,700 June 30 General expenses 39,400 July 1 Final payment on new construction 34,200 December 31 Asset write-up 56,900 419,658 December 31 Depreciation-2015 at 1% 4,046 December 31, 2015 Account balance $415,612 The following additional information is to be considered. 1. To acquire land and building, the company paid $81,800 cash and 800 shares of its 8% cumulative preferred stock, par value $100 per share. Fair value of the stock is $124 per share. 2. Cost of removal of old buildings amounted to $9,860, and the demolition company retained all materials of the building. 3. Legal fees covered the following. Cost of organization $690 Examination of title covering purchase of land 1,570 Legal work in connection with construction contract 2,210 $4,470 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 $34,400 Plant superintendent’s salary-supervision of new building 5,000 $39,400 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 $56,900, 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 $404,600, or $4,046). Collapse question part (a) Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2015. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit 1. Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense 2. Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Accumulated DepreciationBuildings Buildings Depreciation Expense Insurance Expense Land Land and Buildings Paid-in Capital in Excess of ParCommon Stock Prepaid Insurance Organization Expense Retained Earnings Salaries and Wages Expense Link to Text

Explanation / Answer

Jan-31 Land & Building (CWIP) Dr 161800 To Cash Cr 81800 To 8% Preference Share Cr 80000 Feb-28 Land & Building (CWIP) Dr 9860 To cash Cr 9860 May-01 Land & Building (CWIP) Dr 62300 To Cash Cr 62300 May-01 Land & Building (CWIP) Dr 4470 To cash Cr 4470 Jun-01 Land & Building (CWIP) Dr 43700 To Cash Cr 43700 Jun-01 Insurance expense Dr 776 Prepaid insurance Dr 1552 To Cash Cr 2328 Jun-01 Land & Building (CWIP) Dr 4700 To Cash Cr 4700 Jun-30 President salary Dr 34400 Land & Building (CWIP) Dr 5000 To cash Cr 39400 Jul-01 Land & Building (CWIP) Dr 34200 To Cash Cr 34200 Capitalisation of Land& building from its CWIP Account Jul-01 Land & Building Dr 326030 To Land & Building (CWIP) Cr 326030 Dec-31 No entry for estimated increase 31-Dec For recording depreciation Accumulated Dep Dr 6520.6 To Land & Building Cr 6520.6 Remark :- President salary is general in nature. So it should be a revenue expense rather than capitalised to building. As the land & building is installed and used from 1 July, so any expense related to land & building is capitalised Land & building at 31st Dec 326030 Useful Life 50 years Depriciation 6520.6

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