Question

Novak Corp. purchased land for a new parking lot for $140000. The paving cost $176000 and the lights to illuminate the new parking area cost $40000. Which of the following statements is true with respect to these additions? a. $216000 should be debited to Land Improvements. b. $356000 should be debited to the Land account. c. $356000 should be debited to Land Improvements. d. $316000 should be debited to the Land account.

Answer 1

Answer:

A) $216000 should be debited to Land Improvements.

Explanation:

Land improvements include such things as paving, lighting, fencing, etc. Land improvements are an asset and as a result, should be debited when acquired.

In this case, the total value of the land improvements is:

$176,000 for paving + $40,000 for outdoor lighting = $216,000

Thus, $216,000 should be debited.

The reason why land improvements are different from land is because land on its own is considered to last forever and not depreciate, while land improvements depreciate. For example, a plot of land stays in the same place for millions of years, while a pavement cover can deteriorate in a couple of years if not well maintained.