The following costs were incurred to acquire and prepare land for a new parking lot: purchase price of land, $900,000; cost to clear the land, $40,000; cost of paving, $35,000; and cost of lighting for the parking lot, $20,000. How much should be recorded in the Land Improvements account?
A)$20,000
B)$35,000
C)$55,000
D)$40,000

Question

Quizplus · Accepted Answer

The Land Improvements account should only include costs that increase the useful life or efficiency of the land, such as paving and lighting. The purchase price and clearing costs are part of the original cost of the land and should be recorded in a separate Land account. Therefore, the cost of paving ($35,000) and the cost of lighting ($20,000) should be recorded in the Land Improvements account, for a total of $55,000.

The Following Costs Were Incurred to Acquire and Prepare Land