Merchant Company Purchased Property for a Building Site

question 236

Multiple Choice

Merchant Company purchased property for a building site. The costs associated with the property were: What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

• A)$187,700 to Land; $19,000 to Building.
• B)$200,700 to Land; $6,000 to Building.
• C)$200,000 to Land; $6,700 to Building.
• D)$185,000 to Land; $21,700 to Building.
• E)$206,700 to Land; $0 to Building.

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Definitions:

Intra-entity Gain

A profit recognized from transactions conducted within the same legal entity, often eliminated during consolidation for financial reporting.

Excess Annual Amortization

The amount by which the yearly amortization expense exceeds the norm or expected rate, often resulting from an aggressive write-down of intangible assets.

Accrual-based Net Income

Net income calculated using the accrual method of accounting, recognizing revenues when earned and expenses when incurred, regardless of when cash transactions occur.

Excess Annual Amortization

Excess annual amortization refers to the amount of amortization expense that exceeds the expected or standard amount within a given year, often related to intangible assets.