Capitalizing acquisition costs assignment - help?

Question

Problem 1 —Capitalizing acquisition costs. (5 points)
Gibbs Manufacturing Co. was incorporated on 1/2/14 but was unable to begin manufacturing activities until 8/1/14 because new factory facilities were not completed until that date. The Land and Buildings account at 12/31/14 per the books was as follows:

Date Item Amount
1/31/14 Land and dilapidated building $200,000
2/28/14 Cost of removing building 4,000
4/1/14 Legal fees 6,000
5/1/14 Fire insurance premium payment 5,400
5/1/14 Special tax assessment for streets 4,500
5/1/14 Partial payment of new building construction 190,000
8/1/14 Final payment on building construction 190,000
8/1/14 General expenses 30,000
12/31/14 Asset write-up 75,000
$704,900

Additional information:
1. To acquire the land and building on 1/31/14, the company paid $100,000 cash and 1,000 shares of its common stock (par value = $100/share) which is very actively traded and had a fair value per share of $160.
2. When the old building was removed, Gibbs paid Kwik Demolition Co. $4,000, but also received $1,500 from the sale of salvaged material.
3. Legal fees covered the following:
Cost of organization $2,500
Examination of title covering purchase of land 2,000
Legal work in connection with the building construction 1,500
$6,000
4. The fire insurance premium covered premiums for a three-year term beginning May 1, 2014.
5. General expenses covered the following for the period 1/2/14 to 8/1/14.
President's salary $20,000
Plant superintendent covering supervision of new building 10,000
$30,000
6. Because of the rising land costs, the president was sure that the land was worth at least $75,000 more than what it cost the company.

Instructions
Determine the proper balances as of 12/31/14 for a separate land account and a separate buildings account. Use separate T-accounts (one for land and one for buildings) labeling all the relevant amounts and disclosing all computations.

Answer 1

These are the proper balances as of 12/31/14

 

The answer I arrived at is: Land = $279,500

The breakdown details are: original payment for land and old building     200,000 (1/31)

      Debt - for the removal of the old building                                        4,000 (2/28)

     (credit)- salvage value                                                                   (1,500) (2/28)

      Debit  - Examination of title covering purchase of land                      2,000  (4/1)

      Debit - The land was worth more than it cost the company               75,000. (12/31)

The answer for the building is: Building = $381,500

The breakdown details are: 

 Debit- first payment                                190,000   (5/1)

 Debit- second payment                            190,000  ( 8/1)

 Debit - Legal work building construct            1,500   (4/1)

 

Key notes:

I assumed no depreciation for the new building, this is still part of the acquisition phase as of 12/31

I capitalized only the costs associated with the acquisition of land and buildings and the construction of the new building. All other costs or expenses i considered them period cost and should be charged to the P&L.