To indicate: Whether Company H should capitalize or expense each of the expenditure, also explain the manner in which Company H use expenditure to increase reported earnings.

Question

E10-6 Acquisition of Land and Building On February 1, 2019, Edwards Corporation purchased a parcel of land as a factory site for $100,000. It demolished an old building on the property and began construction on a new building that was completed on October 2, 2019. Costs incurred during this period are: Demolition of old building $8,000 Architect’s fees $25,000 Legal fees for title investigation and purchase contract $4,000 Construction costs $650,000 Edwards sold salvaged materials resulting from the demolition for $2,000. Required: 1. At what amount should Edwards record the cost of the land and the new building, respectively? 2. Next Level If management misclassified a portion of the building’s cost as part of the cost of the land, what would be the effect on the financial statements?

Answer 1

Question

Chapter 7, Problem 7.4BP

To determine

To indicate: Whether Company H should capitalize or expense each of the expenditure, also explain the manner in which Company H use expenditure to increase reported earnings.

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