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Sandalwood Corporation purchased a warehouse next door to its headquarters. Sandalwood plans to raze the building and use the site for an overflow parking lot.
Sandalwood Corporation purchased a warehouse next door to its headquarters. Sandalwood plans to raze the building and use the site for an overflow parking lot. Sandalwood allocated the purchase price to the land and the warehouse based on their relative fair values. What is the correct account for the portion of the cost allocated to the warehouse?
All the purchase price is capitalized as the cost of the land.
The cost allocated to the warehouse is charged to land improvements and depreciated over the life of the parking lot.
The cost allocated to the warehouse is written off as a loss in the period when the building is razed.
The cost allocated to the warehouse is charged to depreciation expense in the period when the purchase takes place.
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