Halifax Resort incurred the following costs to acquire and prepare land during 2013 for a new parking lot: purchase price for land,$800,000;cost to clear the land,$30,000;cost of paving,$40,000;and lighting for the parking lot,$20,000.How much should Halifax record in the Land Improvements account?

Question

Quizplus · Accepted Answer

The Land Improvements account should include all costs related to enhancing the usability or value of the land. In this case, the costs of clearing, paving, and installing lighting are all necessary to create a functioning parking lot, and therefore should be capitalized as part of the land improvements. The purchase price for the land, however, is not considered a cost of improving the land, and should be recorded separately. Therefore, the total amount to be recorded in the Land Improvements account is $30,000 (cost to clear the land) + $40,000 (cost of paving) + $20,000 (cost of lighting), which equals $90,000. However, the purchase price of the land ($800,000) should be deducted from this amount, leaving a net amount of $60,000 to be recorded in the Land Improvements account.

Halifax Resort Incurred the Following Costs to Acquire and Prepare