Question

​McArthur, Inc. plans to develop a shopping center. In the first​ quarter, the following amounts were​ spent: Acquisition of land $ 25 comma 000 Surveys and legal fees 800 Land clearing 200 Fencing 9 comma 000 Install lighting and signage 14 comma 060 What amount should be recorded as the land improvements​ cost?

Answer 1

$23,060

Step-by-step explanation:

Land improvement cost comprises of cost spent on the upgrade of a given land and which are subject to wear and tear. They differ from the cost of the land itself which are not depreciable. Accounting rules require that land improvement costs are depreciated, whereas the cost of land itself is not depreciated.

In the given question, the cost of land include the cost of acquisition, survey and legal fees, and land clearing fees. These costs are necessary to acquire title on the land and make it ready for use.

Land improvement cost, on the other hand, include fencing and the cost of installing lighting and signage. This is because these items will depreciate and may need to be replace after some time.

Therefore, land improvement cost = cost of fencing + cost to install lighting and signage

=$9,000 + $14,060

= $23,060.