Multiple Choice
When looking at equity, which type of accounting primarily focuses on providing information to external users such as investors and creditors?
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1. Introduction to Accounting
Types of Accounting
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Which of the following statements about the Land account is accurate?
A
Land is classified as a long-term asset on the balance sheet.
B
Land is reported at its current market value on the balance sheet.
C
Improvements to land, such as fencing, are recorded in the Land account.
D
Land is depreciated over its useful life.
Verified step by step guidance1
Understand the classification of the Land account: Land is considered a long-term asset because it is not expected to be converted into cash or used up within one year. It is reported on the balance sheet under the category of non-current assets.
Review the valuation of Land: Land is typically recorded at its historical cost (the price paid to acquire it) and not adjusted for current market value. This is consistent with the cost principle in accounting.
Consider improvements to land: Improvements such as fencing, paving, or landscaping are not recorded in the Land account. Instead, they are recorded in a separate account called 'Land Improvements,' which is depreciated over time.
Understand depreciation of Land: Land is not depreciated because it does not have a finite useful life. Unlike buildings or equipment, land is assumed to retain its value indefinitely unless impaired.
Evaluate the correct statement: Based on the above clarifications, the accurate statement is that 'Land is classified as a long-term asset on the balance sheet.'
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