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.