In Year 2,the Denim Company bought an acre of land that cost $15,000.In Year 5,another company purchased a nearby acre of land for $28,000 and a different company purchased another nearby acre of land for $26,000.As a result,an appraiser estimated that the acre owned by Denim had increased in value to $27,000.If Denim prepares a balance sheet at the end of Year 5,the acre of land that it owns should be reported at:
A)$15,000.
B)$28,000.
C)$27,000.
D)the average of all of the amounts.

Question

Quizplus · Accepted Answer

Following the cost principle,assets and liabilities are first recorded at cost,which is their cash-equivalent value on the date of the transaction.Later,if an asset's value increases,the increase is generally not recorded under GAAP (unless it is a particular type of financial investment).Denim's balance sheet should report its land at the original cost of $15,000.

In Year 2,the Denim Company Bought an Acre of Land