Question

Wesley Hospital installs a new parking lot. The paving cost $45,000 and the lights to illuminate the new parking area cost $18,000. Which of the following statements is true with respect to these additions?

a. $45,000 should be debited to the land account
b. $18,000 should be debited to land improvements
c. $63,000 should be debited to the land account
d. $63,000 should be debited to land improvements

Answer 1

The correct statement with respect to the additions to the parking lot is b. $18,000 should be debited to land improvements, as paving costs are part of the land while lighting is a depreciable land improvement.

Step-by-step explanation:

You asked which statement is true regarding the costs incurred by Wesley Hospital for installing a new parking lot and lights. When accounting for such expenses, different costs are allocated to different types of asset accounts based on their nature. The paving cost of $45,000 would be capitalized as part of the land because it is a permanent improvement. The lights, however, are not considered a part of the land itself but rather an improvement to the land, thus the $18,000 cost for lighting should be debited to the land improvements account.

Therefore, the correct answer is b. $18,000 should be debited to land improvements.

This is because land improvements are assets that increase the usefulness of the land, have a limited useful life, and are depreciated over time, unlike the land itself, which is not subject to depreciation.