A company purchased land to be used as the site for the construction of a plant.Timber was cut from the building site so that construction of the plant could begin.The proceeds from the sale of the timber should be
A) classified as other income.
B) deducted from the cost of the land.
C) deducted from the cost of the plant.
D) netted against the costs to clear the land and expensed as incurred.

Question

Quizplus · Accepted Answer

The cost of the land should be reduced by the proceeds from the sale of the timber, since the company is effectively reducing the cost of the land by selling a portion of its natural resources. The cost of the plant should not be reduced by the proceeds from the sale of the timber, as construction of the plant is a separate cost from clearing the land. The timber sale is not considered other income as it is directly related to the company's acquisition and preparation of the land for the plant. Netting the costs to clear the land against the timber sale proceeds and expensing as incurred would not properly reflect the costs and revenues associated with the acquisition and preparation of the land.

A Company Purchased Land to Be Used as the Site