Oh No! Manufacturing Co. was incorporated on 1/2/04 but wasunable to begin manufacturing activities until 8/1/04 because newfactory facilities were not completed until that date. The Land andBuilding account at 12/31/04 per the books was as follows:
Date Item
1/31/04 Land and dilapidated building $320,000
2/28/04 Cost of removing building 5,000
4/1/04 Legal fees 6,000
5/1/04 Fire insurance premium payment 7,200
5/1/04 Special tax assessment for streets 5,500
5/1/04 Partial payment of new building construction 180,000
8/1/04 Final payment on building construction 160,000
8/1/04 General expenses 30,000
12/31/04 Asset write-up 75,000
Total: $788,700
Additional information:
1. To acquire the land and building on 1/31/04, the company paid$10,000 cash and 1,000 shares of its common stock (par value =$100/share) which is very actively traded and had a market valueper share of $410.
2. When the old building was removed, Potts paid Kwik DemolitionCo. $5,000, but also received $2,000 from the sale of salvagedmaterial.
3. Legal fees covered the following:
Cost of organization 2,000
Examination of title covering purchase of land 2,500
Legal work in connection with the building construction1,500
Total: $6,000
4. The fire insurance premium covered premiums for a three-yearterm beginning May 1, 2004.
General expenses covered the following for the period 1/2/04 to8/1/04.
President's salary $20,000
Plant superintendent covering supervision of new building$10,000
Total: $30,000
6. Because of the rising land costs, the president was sure thatthe land was worth at least $75,000 more than what it cost thecompany.
Instructions
1. Determine the proper balances as of 12/31/04 for a separateland account and a separate building account. Use separateT-accounts (one for land and one for building) labeling all therelevant amounts and disclosing all computations.
Q3: Nonmonetary exchange.
Filla Co. has a machine that cost $170,000 on March 20, 2000.This old machine had an estimated life of ten years and a salvagevalue of $10,000. On December 31, 2004, the old machine isexchanged for a similar machine with a market value of $108,000.Filla also received $10,000 cash. The last fiscal period ended onDecember 31, 2003, and the company uses straight-line depreciationis used. Assume no commercial substance.
Instructions
(a) Show the calculation of the amount of gain or loss to berecognized by Filla Co. from the exchange. (Round to the nearestdollar.)
(b) Prepare all entries that are necessary on December 31, 2004.Show a check of the amount recorded for the new machine.
Oh No! Manufacturing Co. was incorporated on 1/2/04 but wasunable to begin manufacturing activities until 8/1/04 because newfactory facilities were not completed until that date. The Land andBuilding account at 12/31/04 per the books was as follows:
Date Item
1/31/04 Land and dilapidated building $320,000
2/28/04 Cost of removing building 5,000
4/1/04 Legal fees 6,000
5/1/04 Fire insurance premium payment 7,200
5/1/04 Special tax assessment for streets 5,500
5/1/04 Partial payment of new building construction 180,000
8/1/04 Final payment on building construction 160,000
8/1/04 General expenses 30,000
12/31/04 Asset write-up 75,000
Total: $788,700
Additional information:
1. To acquire the land and building on 1/31/04, the company paid$10,000 cash and 1,000 shares of its common stock (par value =$100/share) which is very actively traded and had a market valueper share of $410.
2. When the old building was removed, Potts paid Kwik DemolitionCo. $5,000, but also received $2,000 from the sale of salvagedmaterial.
3. Legal fees covered the following:
Cost of organization 2,000
Examination of title covering purchase of land 2,500
Legal work in connection with the building construction1,500
Total: $6,000
4. The fire insurance premium covered premiums for a three-yearterm beginning May 1, 2004.
General expenses covered the following for the period 1/2/04 to8/1/04.
President's salary $20,000
Plant superintendent covering supervision of new building$10,000
Total: $30,000
6. Because of the rising land costs, the president was sure thatthe land was worth at least $75,000 more than what it cost thecompany.
Instructions
1. Determine the proper balances as of 12/31/04 for a separateland account and a separate building account. Use separateT-accounts (one for land and one for building) labeling all therelevant amounts and disclosing all computations.
Q3: Nonmonetary exchange.
Filla Co. has a machine that cost $170,000 on March 20, 2000.This old machine had an estimated life of ten years and a salvagevalue of $10,000. On December 31, 2004, the old machine isexchanged for a similar machine with a market value of $108,000.Filla also received $10,000 cash. The last fiscal period ended onDecember 31, 2003, and the company uses straight-line depreciationis used. Assume no commercial substance.
Instructions
(a) Show the calculation of the amount of gain or loss to berecognized by Filla Co. from the exchange. (Round to the nearestdollar.)
(b) Prepare all entries that are necessary on December 31, 2004.Show a check of the amount recorded for the new machine.
