#1.Stargazer Company was incorporated on January 1, 2015 but was unable to begin
ID: 2533901 • Letter: #
Question
#1.Stargazer Company was incorporated on January 1, 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 buildings $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
399,950
December 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 land1,300
Legal work in connection with construction contract1,860
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 Jan 1 to June 30, 2015.
President’s salary$32,100
Plant superintendent’s salary – supervision of new building4,200
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)
Provide entries to reflect correct land, buildings and depreciation accounts at December 31, 2015. I would recommend you show detailed calculations to receive partial credit.
Explanation / Answer
correcting entries
dr
cr
1
land
173600
land
cash
80000
173600
preference share capital
80000
9800
APIC
13600
1300
4000
2
land
9800
closing balance
188700
cash
9800
building
3
land
1300
1860
cash
1300
4200
53800
3
building
1860
130000
cash
1860
closing balance
189860
5
land
4000
cash
4000
depreciation= 1% of 189860 =
1899
6
building
4200
Depreciation
cash
4200
closing balance
1899
7
building
53800
retained earnings
53800
building
130000
cash
130000
1-May
60000
01-Jun
40000
01-Jul
30000
total payment for construction
130000
Excel formulas used:
correcting entries
dr
cr
1
land
173600
land
cash
80000
173600
preference share capital
80000
9800
APIC
=17*800
1300
4000
2
land
9800
closing balance
=SUM(G3:G6)
cash
9800
building
3
land
1300
1860
cash
1300
4200
53800
3
building
1860
130000
cash
1860
closing balance
=SUM(G10:G13)
5
land
4000
cash
4000
depreciation= 1% of 189860 =
=ROUND(G14*1%,0)
6
building
4200
Depreciation
cash
4200
closing balance
1899
7
building
53800
retained earnings
53800
building
130000
cash
130000
42125
60000
43252
40000
43282
30000
total payment for construction
130000
correcting entries
dr
cr
1
land
173600
land
cash
80000
173600
preference share capital
80000
9800
APIC
13600
1300
4000
2
land
9800
closing balance
188700
cash
9800
building
3
land
1300
1860
cash
1300
4200
53800
3
building
1860
130000
cash
1860
closing balance
189860
5
land
4000
cash
4000
depreciation= 1% of 189860 =
1899
6
building
4200
Depreciation
cash
4200
closing balance
1899
7
building
53800
retained earnings
53800
building
130000
cash
130000
1-May
60000
01-Jun
40000
01-Jul
30000
total payment for construction
130000
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