Problem - Gibbs Manufacturing Co. was incorporated on 1/2/10 but was unable to begin manufacturing activities until 8/1/10 because new factory facilities were not completed until that date. The Land and Building account at 12/31/10 per the books was as follows:

Date Item Amount

1/31/10 Land and dilapidated building $200,000

2/28/10 Cost of removing building 4,000

4/1/10 Legal fees 6,000

5/1/10 Fire insurance premium payment 5,400

5/1/10 Special tax assessment for streets 4,500

5/1/10 Partial payment of new building construction 150,000

8/1/10 Final payment on building construction 150,000

8/1/10 General expenses 30,000

12/31/10 Asset write-up 75,000

$624,900

Additional information:

1. To acquire the land and building on 1/31/10, 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 market value per share of $170.

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, 2010.

5. General expenses covered the following for the period 1/2/10 to 8/1/10.

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 12/31/10 for a separate land account and a separate building account. Use separate T-accounts (one for land and one for building) labeling all the relevant amounts and disclosing all computations.