Harkin Company Purchased a Building on a Tract of Land

question 15

Multiple Choice

Harkin Company purchased a building on a tract of land and allocated the entire cost of the purchase to building.Normally,it depreciates buildings over 20 years using the straight-line method with zero residual value and does not depreciate land.Because of its accounting treatment of the purchase,Harkin's income before taxes for the next 20 years will be

• A)overstated.
• B)understated.
• C)unaffected.
• D)in conformance with GAAP.

---

Definitions:

Lowest Cost

The scenario in which the expenditure required to achieve a certain objective or to purchase goods and services is minimized.

Opportunity Cost

The act of sacrificing possible gains from alternative decisions when one is made.

Freight Train

A freight train is a train composed of freight cars for the purpose of transporting goods and materials rather than passengers.

Sugar

A sweet substance primarily obtained from sugarcane and sugar beets, used as a sweetener in food and drinks.