Question

1) Minor Company purchased land which is being prepared for the construction of a new office building. Which of the following should be included in the cost of the land?

A) cost of removing an old building

B) cost of clearing and grading the land

C) cost of the fence which surrounds the property

D) A and B

2) Land, a building and equipment are acquired for a lump sum of $800,000. The market values of the land, building and equipment are $400,000, $900,000 and $300,000, respectively. What is the cost assigned to the equipment? (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

A) $0

B) $150,000

C) $300,000

D) $800,000

3) The depreciation process follows the ________ principle.

A) revenue recognition

B) expense recognition

C) disclosure

D) consistency

Answer 1

1

Cost of removing an old building and cost of clearing and grading the land should be included in the cost of the land

Cost of the fence which surrounds the property is included in Land improvements

Option D is correct

2
Market value:
Land	400000
Building	900000
Equipment	300000
Total	1600000
Cost assigned to the equipment	150000	=800000*300000/1600000
Option B $150,000 is correct

3

The depreciation process follows the expense recognition principle.

Expense recognition principle requires expenses to be recognized and matched with revenues.

Option B is correct