Monday 21 May 2012

A real estate management company buys an abandoned apartment complex for $4.5 million. It pays a construction company $500,000 to demolish the old building. Which of the following is true?


A real estate management company buys an abandoned apartment complex for $4.5 million. It pays a construction company $500,000 to demolish the old building. Which of the following is true?
The company would record $4.5 million as the cost of the land.
The company would record $500,000 as demolition expense.
The company would record $4 million as the cost of the land.
The company would record $5 million as the cost of the land.
Explanation 
 
All necessary expenditures to acquire an asset and prepare it for its intended use are recorded as the cost of the asset. $4.5 million + $500,000 = $5 million.

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