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Chapter 10: 7BE (page 502)

Fielder Company obtained land by issuing 2,000 shares of its \(10 par value common stock. The land was recently appraised at \)85,000. The common stock is actively traded at $40 per share. Prepare the journal entry to record the acquisition of the land.

Short Answer

Expert verified

Land is debited by $80,000, common stock is credited by $20,000 and paid in capital excess of par credited by $60,000 to record the acquisition of land.

Step by step solution

01

Calculation of cost of land and common stock value

CostofLand=NumberofShares脳MarketPriceofShares=2,000脳$40=$80,000

CommonStock=NumberofShares脳FaceValueofShares=2,000脳$10=$20,000

02

Journal entry of acquisition of land

Date

Particular

Debit ($)

Credit ($)

Land

$80,000

To Common stock

$20,000

To Paid in capital excess of par

$60,000

To record the acquisition of land

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Most popular questions from this chapter

(Correction of Improper Cost Entries) Plant acquisitions for selected companies are as follows.

  1. Belanna Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of \(700,000. At the time of purchase, Torres鈥檚 assets had the following book and appraisal values.

Book Values

Appraisal Values

Land

\)200,000

\(150,000

Buildings

250,000

350,000

Equipment

300,000

300,000

To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made.

Land 150,000

Buildings 250,000

Equipment 300,000

Cash 700,000

2. Harry Enterprises purchased store equipment by making a \)2,000 cash down payment and signing a 1-year, \(23,000, 10% note payable. The purchase was recorded as follows.

Equipment 27,300

Cash 2,000

Notes Payable 23,000

Interest Payable 2,300


3. Kim Company purchased office equipment for \)20,000, terms 2/10, n/30. Because the company intended to take the discount, it made no entry until it paid for the acquisition. The entry was:

Equipment 20,000

Cash 19,600

Purchase Discounts 400

4. Kaisson Inc. recently received at zero cost land from the Village of Cardassia as an inducement to locate its business in the Village. The appraised value of the land is \(27,000. The company made no entry to record the land because it had no cost basis.


5. Zimmerman Company built a warehouse for \)600,000. It could have purchased the building for $740,000. The controller made the following entry.

Buildings740,000

Cash 600,000

Profit on Construction 140,000

Instructions

Prepare the entry that should have been made at the date of each acquisition.

Previn Brothers Inc. purchased land at a price of \(27,000. Closing costs were \)1,400. An old building was removed at a cost of $10,200. What amount should be recorded as the cost of the land?

(Entries for Asset Acquisition, Including Self-Construction) Below are transactions related to Duffner Company.

  1. The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be \(81,000.
  2. 13,000 shares of common stock with a par value of \)50 per share are issued in exchange for land and buildings. The property has been appraised at a fair value of \(810,000, of which \)180,000 has been allocated to land and \(630,000 to buildings. The stock of Duffner Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at \)65 per share, and a block of 200 shares was sold by another stockholder 18 months ago at \(58 per share.

No entry has been made to remove from the accounts for Materials, Direct Labor, and Overhead the amounts properly chargeable to plant asset accounts for machinery constructed during the year. The following information is given relative to costs of the machinery constructed.

Materials used

\)12,500

Factory supplies used

900

Direct labor incurred

15,000

Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used

2,700

Fixed overhead rate applied to regular manufacturing operations

60% of direct labor cost

Cost of similar machinery if it had been purchased from

Outside suppliers

44,000

Instructions

Prepare journal entries on the books of Duffner Company to record these transactions.

(Classification of Land and Building Costs) Spitfire Company was incorporated on January 2, 2018, but was unable to begin manufacturing activities until July 1, 2018, because new factory facilities were not completed until that date.

The Land and Buildings account reported the following items during 2018.

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鈥�2018 at 1%

(4,000)

December 31, 2018

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, 2018.

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, 2018, to June 30, 2018.

President鈥檚 salary
\(32,100
Plant superintendent鈥檚 salary鈥攕upervision 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鈥�50 years. Depreciation for 2018鈥�1% of asset value (1% of \)400,000, or $4,000).

Instructions

  1. Prepare entries to reflect correct land, buildings, and depreciation accounts at December 31, 2018.
  2. Show the proper presentation of land, buildings, and depreciation on the balance sheet at December 31, 2018.

Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of \(315,000. The estimated fair values of the assets are land \)60,000, building \(220,000, and equipment \)80,000. At what amounts should each of the three assets be recorded?
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