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Chapter 1: 8RQ. (page 32)

A business purchases an acre of land for \(5,000. The current market value is \)5,550, and the land was assessed for property tax purposes at $5,250. What value should the land be recorded at, and which accounting principle supports your answer?

Short Answer

Expert verified

The land should be recorded at $5,000, and it supports the cost principle.

Step by step solution

01

Explanation of cost principle

As per the cost principle of accounting, assets or services purchased by the business entity should be recorded at the purchase cost or the historical cost.

02

Reporting of land

In the given case, the land is purchased at a price of $5,000, hence it will be reported at $5,000 only. It will not be affected on the basis of market value and the value determined for the property tax purpose.

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Most popular questions from this chapter

Polk Street Homes had the following cash transactions for the month ended July 31, 2018.

Cash receipts:

Collections from customers $ 25,000

Issued common stock 13,000

Cash payments:

Rent 500

Utilities 2,000

Salaries 1,500

Purchase of equipment 25,000

Payment of cash dividends 4,000

Cash balance, July 1, 2018 14,000

Cash balance, July 31, 2018 19,000

Prepare the statement of cash flows for Polk Street Homes for the month ended

July 31, 2018.

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ExampleComponent
1. Server
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2. Bank checksb. Processing and storage
3. Reportsc. Outputs
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7. Bar code scanner

Identifying users of accounting information For each user of accounting information, identify if the user would use financial accounting or managerial accounting. a. investor e. controller b. banker f. stockholder c. IRS g. human resources director d. manager of the business h. creditor

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