Question

Blackwolf company has acquired a parcel of land with an old building on it. they plan to demolish the building and prepare the land for construction of a new building and a parking lot.

required:
for each of the following items, choose the account used in capitalizing the cost. if an item should not be capitalized, choose not capitalized.
land land improvement buildings equipment not capitalized
cost of construction of new building O O O O O
cost of land and old building O O O O O
delivery of equipment O O O O O

Answer 1

In accounting for the Blackwolf Company's acquisition and construction costs, the cost of constructing a new building is capitalized under Buildings, the cost of the land and old building under Land, and delivery of equipment is typically not capitalized but recorded under Equipment or expensed.

Step-by-step explanation:

The student's question relates to how to classify costs for accounting purposes in a business that is involved in construction and renovation of property. When Blackwolf Company acquires land with an old building, which they plan to demolish in order to construct a new building and a parking lot, costs must be properly capitalized. According to accounting principles, costs should be capitalized and added to the value of the asset that they pertain to.

• Cost of construction of new building - This cost would be capitalized under the Buildings account as it represents the costs directly associated with constructing the new structure.
• Cost of land and old building - The purchase price and any associated costs of acquiring land with the old building would be capitalized under the Land account. As the building is to be demolished, its value would not be added to the Buildings account but would be part of the overall land acquisition cost.
• Delivery of equipment - Costs related to the delivery of equipment, if they are used to prepare the land or building, would typically not be capitalized. Instead, they would be considered as part of the cost of the equipment and would be recorded under the Equipment account or as not capitalized if they are negligible or expensed as incurred.