Oceanside Developments Owns a Piece of Land It Had Purchased

question 47

Multiple Choice

Oceanside Developments owns a piece of land it had purchased in 2019 for $400,000.When they started to develop the land in 2020,they discovered that there were environmental problems with the land.It is now estimated to be worth only $150,000.Which of the following is the correct way to account for this?

• A)No accounting is necessary because the land is recorded at its historical cost,not its market value.
• B)The land account should be written down to $150,000 and a loss recognized.
• C)The land should be written off completely because now the company cannot use it for the purpose they intended to.
• D)The land should be depreciated at a new rate to reflect the decline in its value.

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Definitions:

Operating Expenses

Operating expenses are the costs associated with running a business’s core operations on a day-to-day basis, excluding the cost of goods sold.

Minimum Required Rate of Return

The minimum return on an investment that is deemed acceptable, based on the risk tolerance of an investor or a company.

Variable Cost per Unit

The cost associated with producing one unit of a product, which varies with the level of production or sales volume.

Annual Fixed Costs

The total fixed costs a company incurs over a year, which do not vary with the level of production or sales.