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.

Question

Quizplus · Accepted Answer

The costs with an unlimited life, such as the purchase price for land and cost to clear the land, are debited to Land because they represent a permanent investment that does not depreciate over time. Costs with a limited useful life, such as paving, lighting, and landscaping for the parking lot, are debited to Land Improvements because they enhance the land's value and are subject to depreciation over their useful life.

The Following Costs Were Incurred to Acquire and Prepare Land