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Cost principle On June 25, Ritts Roofing extended an offer of $250,000 for land that had been priced for sale at $300,000. On July 9, Ritts accepted the seller’s counteroffer of $275,000. On October 1, the land was assessed at a value of $280,000 for property tax purposes. On December 22, Ritts was offered $305,000 for the land by a national retail chain. At what value should the land be recorded in Ritts Roofing's records?

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 1, Problem 1.1BE
Textbook Problem
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Cost principle

On June 25, Ritts Roofing extended an offer of $250,000 for land that had been priced for sale at $300,000. On July 9, Ritts accepted the seller’s counteroffer of $275,000. On October 1, the land was assessed at a value of $280,000 for property tax purposes. On December 22, Ritts was offered $305,000 for the land by a national retail chain. At what value should the land be recorded in Ritts Roofing's records?

To determine

Cost principle: This is an accounting principle 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 RR Service.

Explanation of Solution

  • RR Service extended the offer for $250,000, when the land was priced at $300,000. But RR Service did not buy at that price. So, this price should not be recorded as per cost principle.
  • The value of land was appraised to $280,000, but this indicates that the value of land was increased...

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Chapter 1 Solutions

Corporate Financial Accounting
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