Question

Below are transactions related to Whispering Company. (a) The City of Pebble Beach gives the company 5 acres of land as a plant site. The fair value of this land is determined to be $88,510. (b) 13,000 shares of common stock with a par value of $52 per share are issued in exchange for land and buildings. The property has been appraised at a fair value of $885,100, of which $ 163,640 has been allocated to land and $721,460 to buildings. The stock of Whispering Company is not listed on any exchange, but a block of 100 shares was sold by a stockholder 12 months ago at $68 per share, and a block of 200 shares was sold by another stockholder 18 months ago at $60 per share. (c) No entry has been made to 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. $11,680 936 Materials used Factory supplies used Direct labor incurred Additional overhead (over regular) caused by construction of machinery, excluding factory supplies used 17,160 2,882 60% of direct labor cost Fixed overhead rate applied to regular manufacturing operations Cost of similar machinery if it had been purchased from outside suppliers 41,130

Answer 1

Solution:

No.	Account title and Explanation	Debit ($)	Credit ($)
a.	Land	88,510
	Grant revenue		88,510
	(To record the fair value of land)
b.	Buildings	721,460
	Land	163,640
	Share capital - ordinary (13000 shares × $52)		676,000
	Share premium - ordinary*		209,100
	( To record the fair value of land and building)
c.	Machinery	42,954
	Direct labor		17,160
	Factory overhead**		14,114
	Materials		11,680
	(To record the machinery constructed)

* since the fair value of the stock isn't determinable. The fair value of property is used as the base for recording the assets and issuance of the shares.

**

Fixed overhead applied ($17,160 × 60%)	$10,296
Additional overhead	$2,882
Factory supplies used	$936
Total	$14,114