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Homework answers / question archive / The City of Pebble Beach gives the company 5 acres of land as a plant site

The City of Pebble Beach gives the company 5 acres of land as a plant site

Business

The City of Pebble Beach gives the company 5 acres of land as a plant site. The market value of this land is determined to be $81,000.

(b) 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 market value of $810,000, of which $180,000 has been allocated to land and $630,000 to buildings. The stock of Fred Couples Company is not listed on any exchange, but a block of 100 hares 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.

(c) No entry has been made ot 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 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 Fred Couples Company to
record these transactions.

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No amount will be entered in company records for land because there is no cost. Value is good, but cost is accounting. Had the recipient of the land been a not-for-profit company, donated capital would have been treated differently.

b. Given the information, we have an objective and recent method to value the stock issued. $810000 / 13000 shares = $62.31 per share. The other two transactions are older and therefore less relevant. Regardless of our inside value computations, we use the more objective value determined outside the company. The information provided on prior sales does give some validity to the price per share.

c. The $44000 that would have been paid is irrelevant too. I don't propose an entry for that transaction to fixed assets because we don't know the real cost. Factory supplies don't add to the value of the self-constructed asset and should be ignored for purposes of capitalizing costs.

The debit side of the entries you will make will include
Land 180,000
Building 630,000
Constructed Machinery 12,500 + 15,000 + 2,700 + (15,000 x 60%) = 39,200

The credit side of the entries
Common stock issued - par value (13,000 x 50) = 650,000
Additional paid in capital 160,000
Materials, labor, overhead for the rest 39,200

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