Question

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

Answer 1

Answer:

$55,000

Explanation:

Land improvements are improvements that are made to the land, that have a cost, are tangible, and can be depreciated.

If the improvements meet those criteria, then, they are added to a separate land improvements account, and its depreciation can be charged as a expense.

In this case, there are two interventions that meet the criteria: the $40,000 incurred in paving, and the $35,000 incurred in lighting the parking lot.

Both pavements and lighting are physical assets spent to improve the land, both are tangible things, and both can be depreciated, since pavements and lighting deteriorate with time.