The Following Costs Were Incurred to Acquire and Prepare Land

question 85

Multiple Choice

The following costs were incurred to acquire and prepare land for a new parking lot: purchase price for land, cost to clear the land, cost of paving, cost of lighting for the parking lot, and cost of landscaping for the parking lot. How should the company determine which costs should be recorded as Land Improvements and which costs should be recorded as Land?

• A)The costs with an unlimited life are debited to Land, and the costs with a limited useful life are debited to Land Improvements.
• B)The costs with a limited life are debited to Land, and the costs with an unlimited useful life are debited to Land Improvements.
• C)The costs to be depreciated are debited to Land, and the costs that will not be depreciated are debited to Land Improvements
• D)Costs that are depreciable are debited to Land Improvements, while other costs are expensed immediately because of a lack of definite life.

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Definitions:

Net Operating Income

The profit generated from a company's regular business operations, excluding expenses such as interest and taxes.

Traceable Fixed Expense

A fixed expense that can be directly associated with a specific business segment or area, making it easier to allocate costs accurately.

Net Operating Income

The profit generated from a company's operational activities, excluding expenses and revenues that are not related to the core business operations.

Percentage Change

A mathematical calculation that indicates the degree of change over time, representing the difference between an old and new value as a percentage of the old value.