Dorsey Co. has expanded its operations by purchasing a parcel of land with a building on it from Bibb Co. for $96,000. The appraised value of the land is $22,000, and the appraised value of the building is $109,000.
Assuming that the building is to be used in Dorsey Co.'s business activities, what cost should be recorded for the land?
Explain why, for income tax purposes, management of Dorsey Co. would want as little of the purchase price as possible allocated to land.
Assuming that the building is razed at a cost of $11,000 so the land can be used for employee parking, what cost should Dorsey Co. record for the land?