ABC Company purchased $700,000 of vacant land one block from the College World Series Stadium which it intends to use for parking. The Company spent $300,000 this year to prepare the land for paving and $250,000 to actually pave the land. The Company is quite profitable so Management has decided to record the entire cost of the land, all of the costs to prepare the land for paving, and all of the paving costs in the Repairs and Maintenance Expense account. What is the effect of this decision on the Company’s net income? What is the effect on the Balance Sheet. What is the effect on the tax return? Is this the appropriate treatment of the cost of the land and paving costs? Are the actions of Management ethical? Justify your response.
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