Question

Computing and Recording a Basket Purchase and Straight-Line Depreciation [LO9-2, LO9-3] Brigadoon Consulting bought a building and the land on which it is located for $181,000 cash. The land is estimated to represent 70 percent of the purchase price. The company paid $21,000 for building renovations before it was ready for use.The renovation costs should be capitalized. multiple choice. True or False

Answer 1

The statement 'The renovation costs should be capitalized' is true. When a company purchases a building, the cost of any improvements made to the building, such as renovations, should be added to the cost of the building itself.

Step-by-step explanation:

The statement "The renovation costs should be capitalized" is true.

When a company purchases a building, the cost of any improvements made to the building, such as renovations, should be added to the cost of the building itself. This is because those improvements are part of the overall cost of acquiring the building.

In this case, Brigadoon Consulting paid $21,000 for building renovations before it was ready for use. Therefore, the renovation costs should be added to the purchase price of the building when calculating the total cost of the building.

To determine the portion of the purchase price that represents the land, you can use the given information that the land is estimated to represent 70 percent of the purchase price. The remaining 30 percent represents the portion of the purchase price that represents the building.

Therefore, the company would capitalize the $21,000 renovation costs by adding it to 30 percent of the total purchase price of the building.