Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Asset } & \begin{array}{c}
\text { Original } \
\text { Cost }
\end{array} & \begin{array}{c}
\text { Replacement } \
\text { Cost }
\end{array} & \begin{array}{c}\text { Fair }\
\text { Market } \
\text { Value }
\end{array} & \begin{array}{c}
\text { PresentValue of Future } \
\text { Cash Flows Produced } \
\text { by Old Asset }
\end{array} & \begin{array}{c}
\text { Present Value of } \
\text { Future Cash Flows } \
\text { of Equivalent Asset }
\end{array} \\hline \mathrm{A} & \$ 4,500 & \$ 1,500 & \$ 2,000 & \$ 3,000 & \$ 5,000 \
\hline \mathrm{B} & \$ 2,000 & \$ 2,500 & \$ 1,000 & \$ 3,000 & \$ 4,500 \
\hline \mathrm{C} & \$ 2,500 & \$ 4,000 & \$ 3,500 & \$ 3,000 & \$ 6,000 \
\hline
\end{array}$
On December 31, 2018, just before preparing the company's financial statements, Bill decides to replace Asset A and keep both Assets B and C. According to generally accepted accounting principles, at what dollar amount should he report each of these respective assets on the balance sheet?

Question

Quizplus · Accepted Answer

According to GAAP, assets should be reported at the lower of cost or fair market value. For Asset A, the lower of cost ($4,500) or fair market value ($2,000) is $2,000. For Asset B, the lower of cost ($2,000) or fair market value ($1,000) is $1,000. For Asset C, the lower of cost ($2,500) or fair market value ($3,500) is $2,500.

Three Years Ago, Astro Masters, Inc On December 31, 2018, Just Before Preparing the Company's Financial