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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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a Land with an assessed value of $750,000 for property tax purposes is acquired by a business for $900,000. Ten years later, the plot of land has an assessed value of $1,200,000 and the business receives an offer of $2,000,000 for it. Should the monetary amount assigned to the land in the business records now be increased?

b. Assuming that the land acquired in (a) was sold for $2,125,000, how would the various elements of the accounting equation be affected?

(a)

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.

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relation between resources or assets of a company and claims of resources to creditors and owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' investments)+(Owners' withdrawals)+(Revenues)(Expenses)}

To indicate: If the amount at which the land is recorded should be changed according to the appraised value of land

Explanation
The value of land should not be changed in the business records. The value of land after 10 years shows that the ...

(b)

To determine

To indicate: The effect of sale of land for $2,125,000, on the accounting equation

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