@jrosen – Yes, C is the correct answer. Of course I got frustrated and guessed wrong. But reviewing the answer, it's not all that complicated. Just smoke and mirrors as you say. But man it frustrates me.
For my question, the answer is both because the criteria to capitalize as an improvement is 1. Extends the life of the asset OR 2. Increases efficiency. Reducing production costs increases production efficiency.
Dang. I wasn't sure if I should subtract the 20,000 they don't expect to collect or not. For accounting to be all about consistency, whoever created all these different rules don't follow consistency at all. They should book the entire thing as unearned revenue and create a contra account for the allowance not to receive the revenue, just like they do for A/R. We need emoticons on here so I can stick my tongue out at the AICPA for these questions.
Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be
A. Classified as other income.
B.Deducted from the cost of the land.
C.Netted against the costs to clear the land and amortized over the life of the plant.
D. Netted against the costs to clear the land and expensed as incurred.
He just wrote it wrong. You actually multiply the 21 by the initial fee of $10,000 to get 210,000 and multiply the $20,000 owed by 20 since one won't pay to get 400,000. 210,000 + 400,000 = 610,000
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