When a Company Purchases Land with a Building on It

question 18

Multiple Choice

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant, the cost incurred to tear down the building should be

• A) Expensed as incurred
• B) Added to the cost of the plant
• C) Added to the cost of the land
• D) Amortized over the estimated time period between the tearing down of the building and the completion of the plant

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Definitions:

Variable Expenses

Costs that vary directly with the level of activity or production output, such as raw materials and direct labor.

Break-even Point

The point at which total costs and total revenues are equal, meaning there is no profit or loss.

Variable Expenses

Costs that vary directly with levels of production or sales volume, such as materials and labor.

Fixed Expenses

Recurring costs that do not vary with the volume of production or sales, similar to fixed costs.