The following information applies to the questions displayed below. The followin

Question

The following information applies to the questions displayed below. The following infbrmation applies to the questions Dorsey Co. has expanded its operations by purchasing a parcel of land with a bullding on it from Blbb Co. for 90,000. The appralsed value of the land is $22,000, and the appralsed value of the bulding is $93,000 2. Required a. Assuming that the building is to be used in Dorsey Co.'s business activities, what cost should be recorded for the land? (Do not round your intermediate calculations.) Cost of land

Explanation / Answer

a)

Cost of land = $17,217 ($22,000/$115,000*$90,000)

Note: $22,000 + $93,000 = $115,000

b)

The reason Dorsey Co. allocates less cost to Land is the land is not a depreciable asset. If Dorsey Co. would allocates more cost to land account then the company can not show more depreciation expense so the taxable amount can not be reduced. As a result, the taxable amount will be more, to avoid this, the companyhas allocated less amount to land account.

The correct option is Land is not a depreciable asset. For more information, Land has always appreciation in its value.

c)

Since building is razed to make the land available for employee parkig that means the company wants to use the land completely so there will not be any buildings to allocate the cost. So total cost of $90,000 will be allocated to land account and the additional cost of $11,000 incurred to raze the building is also considered as part of cost of land. So the total cost allocated to land account is $101,000 ($90,000 + $11,000).

d)

The reason is, the appraised values represents the current asset values because assets will be appraised based on the current conditions of value of assets.

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