Question

Indicate whether each of the following expenditures should be classified as land, land improvements, buildings, equipment, or none of these. 1. Parking lots 2. Electricity used by a machine 3. Excavation costs 4. Interest on building construction loan 5. Cost of trial runs for machinery 6. Drainage costs 7. Cost to install a machine 8. Fences 9. Unpaid (past) property taxes assumed 10. Cost of tearing down a building when land and a building on it are purchased

Answer 1

Investment expenditure relates to spending on new capital goods, which can be categorized under assets such as land, land improvements, buildings, and equipment. The categorized expenditures, such as parking lots as land improvements and electricity used as none of these, aid in understanding how investments contribute to business operations and value.

Step-by-step explanation:

When businesses spend on new capital goods, this is referred to as investment expenditure, which is critical for the expansion and sustenance of operations. Classes of investments include producer's durable equipment and software, nonresidential structures, changes in inventories, and residential structures.

To accurately categorize the given expenditures, we must consider their purpose and usage in relation to the business operations.

• Parking lots are typically classified under land improvements as they serve a long-term use and add value to the land.
• The electricity used by a machine is generally considered an operating expense, rather than a capital investment, so it would be none of these.
• Excavation costs incurred when preparing land for construction are often considered part of the land cost.
• Interest on building construction loan is tied to the financing of a building, and it can be part of the building cost.
• The cost of trial runs for machinery might be part of the equipment costs since it's associated with preparing equipment for use.
• Drainage costs are related to land preparation, therefore can be classified as land improvements.
• The cost to install a machine directly relates to the machinery and is a part of the equipment cost.
• Fences typically fall under land improvements as they enhance the utility or value of the land.
• Unpaid (past) property taxes assumed in a property transaction would be added to the land cost as it is a prerequisite for transfer of ownership.
• The cost of tearing down a building when land and a building are purchased is often considered part of the total land cost because it clears the land for its intended use.

Answer 2

Step-by-step explanation:

The costs which are related to the land, land improvements, buildings, equipment are classified and if none of the cost is not related than it would be consider as none of these. The classification is shown below:

1. Parking lots - Land improvements

2. Electricity used by a machine - None of these

3. Excavation costs - Building

4. Interest on building construction loan - Building

5. Cost of trial runs for machinery - equipment

6. Drainage costs - land

7. Cost to install a machine - equipment

8. Fences - Land improvement

9. Unpaid (past) property taxes assumed - land

10. Cost of tearing down a building when land and a building on it are purchased - land