Reference no: EM133628509
Question: Sandhu Manufacturing Co. was organized as a corporation on January 2, 2023 at which time it began construction of its production facilities. The new factory was completed on September 30 and on October 1, 2023, operations began.
Requirements: Determine the correct balance on December 31, 2023 for the land and buildings accounts. You will need to compute two balances, one for land and one for buildings. Sandhu provided a list of the following transactions that management thought might be included in the cost of the land and building.
a. On January 2, Sandhu Manufacturing purchased the land on which the factory would be constructed along with an old run-down building that it planned to demolish. Sandhu paid $200,000 in cash and issued 1000 shares of its common stock in exchange for the property. The stock had a par value of $50 per share. Because the corporation was privately held, the stock was not actively traded but Sandhu estimated that the stock would likely sell for about $110 per share. An independent appraisal of the land and dilapidated building estimated the combined value was $300,000.
b. On January 15, Sandhu paid Robinson Demolition Co. $10,000 to demolish the building. Sandhu was able to sell the material salvaged from the building for $2,000.
c. On April 1, Sandhu paid its attorney, Paul Lehr, $10,000 for legal services provided in the first quarter of 2023. The following itemized billing was received:
1. Cost to organize the corporation including preparation and filing of articles of incorporation, bylaws, and other necessary documents. $5,000
2. Services associated with the land purchase 3,000
3. Services associated with obtaining building permits and other legal services related to construction of the building. 2,000
d. On May 1, Sandhu made the following three payments related to its factory facilities.
1. Fire insurance premium on the new building, $9,600. The premium paid for coverage for two years beginning on the date of payment.
2. Special tax assessment by the city for extending the street to the property, $4,500.
3. Payment of half the construction costs to Gastelum Construction Co., $450,000.
e. On September 30, the remaining $450,000 was paid to Gastelum Construction Co.
f. Aaron Sandhu, the CEO of Sandhu Manufacturing Co. received a salary of $36,000 during the first nine months of 2023, with the expectation of increasing his salary to $8,000 a month once production began.
g. Andres Sandhu, Aaron's son, will be supervisor of one of the two production departments once operations begin. He received a $9,000 consulting fee for overseeing the new building construction during the first nine months of 2023.
h. Property values increased significantly during the first half of 2023. Aaron had the property reappraised on September 30 and found the value of the land had increased $100,000 over what was paid