Question

Cotton Hotel Corporation recently purchased the Hotel Middleburg and the land on which it is located. Cotton Hotel Corporation intends to demolish the Hotel Middleburg and build a new luxury hotel in that location. What will happen to the cost of the Hotel Middleburg

Answer 1

a. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.

b. written off as a loss in the year the hotel is torn down.

c. capitalized as part of the cost of the land.

d. capitalized as part of the cost of the new hotel.

capitalized as part of the cost of the land.

Answer: Option C.

Explanation:

Since the land of the hotel is going to be the same on which the new hotel is going to be built, the cost of the hotel would be capitalized as the cost of the land of the new hotel that is to be built on the same land on which the hotel middleburg was built.

It was written in the books as the capitalized cost of the land because the land of both the hotels are going to be the same.