Oakland Corp.purchased land and a building for a combined cost of $500,000.Oakland must
A) record the $500,000 acquisition cost in an account called Land and Buildings.
B) depreciate the $500,000 acquisition cost, less any residual value, over the expected useful life of the building.
C) because part of the purchase involved land, record all of the cost in the Land account.
D) allocate the $500,000 acquisition cost to separate Land and Buildings accounts based on their respective fair market values.

Question

Quizplus · Accepted Answer

It is necessary to allocate the acquisition cost between the land and the building based on their respective fair market values. Land is not a depreciable asset, while buildings are, so they should be accounted for separately. This method gives a more accurate representation of the cost of the building over its useful life.