Indicate Whether Each of the Following Expenditures Should Be Classified

question 11

Short Answer

Indicate whether each of the following expenditures should be classified as land (L), land improvements (LI), buildings (B), equipment (E), or none of these (X).
____ 1. Parking lots
___ 2. Electricity used by a machine
___ 3. Excavation costs
____4. Interest on building construction loan
____5. Cost of trial runs for machinery
____6. Drainage costs
___ 7. Costto install amachine
______8. Fences
___ 9. Unpaid (past) property taxes assumed
___10. Cost of tearing down a building when land and a building on it are purchased

---

Definitions:

Variable Costs

Expenses that vary directly with the level of business activity.

Fixed Costs

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance premiums.

Internal Rate of Return

The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero, used to evaluate the profitability of potential investments.

Accounting Basis

Refers to the method of recording accounting transactions; either on a cash basis or on an accrual basis.