Hank bought a small ranch for $300,000 in 2010. In 2018, oil is discovered on neighboring property. The county assessor re-valued Hank's property at $1,550,000. Hank does not recognize any income due to the

Question

Quizplus · Accepted Answer

The Realization Concept dictates that income is recognized when it is earned and realized, meaning when it is converted into something of value, such as cash. In this scenario, Hank has not realized any income from the re-valuation of his property, as he has not sold or otherwise disposed of the property. The fact that the property has increased in value due to external factors, such as the discovery of oil nearby, does not mean that Hank has realized any income. Therefore, the Realization Concept applies in this situation.

Hank Bought a Small Ranch for $300,000 in 2010