Capital Expenditures – MCQ

Practice Question

Intro to Financial Accounting
Long-Lived Assets
Capital Expenditures vs. Expenses
MCQs

A company purchases land for $200,000, incurs an additional $20,000 for legal fees, and pays $5,000 for title insurance. What is the total cost of the land recorded on the balance sheet?

  1. $225,000
  2. $200,000
  3. $220,000
  4. $205,000
Answer +
Correct Answer: A
Explanation +

The total cost of land includes all expenditures necessary to acquire the asset and prepare it for use.

\[ \text{Total Cost} = \$200,000 + \$20,000 + \$5,000 = \textbf{\$225,000} \]

These costs are capitalized, meaning they are recorded as part of the land asset on the balance sheet.