Long-term operating assets are recorded at their original purchase price plus any expenditures required to obtain and prepare the asset for its intended use. A company purchased land and a building for $500,000. Why is it important to carefully divide the $500,000 purchase price between the amount assigned to land and the amount assigned to building? Depending on how much cost is assigned to the land, interest expense can impact the reported amount of gross profit. Depending on how much cost is assigned to the land, interest expense can impact the reported amount of income before income taxes. Depending on how much cost is assigned to the building, depreciation expense can impact the reported amount of operating income. Depending on how much cost is assigned to the building, rent revenue can impact the reported amount of operating income.
Long-term operating assets are recorded at their original purchase price plus any expenditures required to obtain and prepare the asset for its intended use. A company purchased land and a building for $500,000. Why is it important to carefully divide the $500,000 purchase price between the amount assigned to land and the amount assigned to building? Depending on how much cost is assigned to the land, interest expense can impact the reported amount of gross profit. Depending on how much cost is assigned to the land, interest expense can impact the reported amount of income before income taxes. Depending on how much cost is assigned to the building, depreciation expense can impact the reported amount of operating income. Depending on how much cost is assigned to the building, rent revenue can impact the reported amount of operating income.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter7: Fixed Assets, Natural Resources, And Intangible Assets
Section: Chapter Questions
Problem 7.1.3P
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