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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Cost concept

On February 22, Kountry Repair Service extended an offer of $200,000 for land that had been priced for sale at $250,000. On April 3, Kountry Repair Service accepted the seller’s counteroffer of $230,000. On September 15, the land was assessed at a value of $185,000 for property tax purposes. On January 9 of the next year, Kountry Repair Service was offered $300,000 for the land by a national retail chain. At what value should the land be recorded in Kountry Repair Service’s records?

To determine

Cost concept:

This is an accounting concept which states that the actual cost paid in receipt of the asset is the reliable measure and hence assets and services should be recorded at actual cost or historical cost.

To describe: The recording of purchase of land in the books of KR Service

Explanation
  • KR Service extended the offer for $200,000, when the land was priced at $250,000. But KR Service did not buy at that price. So, this price should not be recorded as per cost concept.
  • The land was assessed at a value of $185,000, but this indicates that the value of land was decreased...

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