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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Land reported in the property, plant, and equipment section of a manufacturing company’s balance sheet is reported at:

  1. a. historical cost
  2. b. historical cost, less accumulated depreciation
  3. c. fair value
  4. d. lower of cost or market value

To determine

Identify the option at which the land is reported in the property, plant, and equipment section of a manufacturing company’s balance sheet.

Explanation

Justification for the incorrect option b:

Historical cost, less accumulated depreciation:

The asset is recognized at adjusted historical cost (historical cost, less accumulated depreciation) only when the economic benefit of asset are consumed gradually over its estimated life. Therefore, it is an incorrect option.

Justification for the incorrect option c:

Fair value:

The FASB and IASB stated fair value as “the price that is received for selling an asset or the price that is paid to transfer a liability in an orderly transaction between market participants at the measurement date”. The fair value can be known at the date in which the company acquires an asset by payment of cash and this cost is equal to the historical cost of an asset recorded for the transaction. Therefore, it is an incorrect option.

Justification for the incorrect option d:

Lower of cost or market value:

Lower of cost or market value is used to measure the value of asset such as inventory at cost whichever is lower, either the original cost or the market value...

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