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In: Accounting

Karen Sommers Travel Agency purchased land for $90,000 cash on December 10, 2011.

Karen Sommers Travel Agency purchased land for $90,000 cash on December 10, 2011. At December 31, 2011, the land’s value has increased to $93,000. What amount should be reported for land on Karen Sommers’s balance sheet at December 31, 2011? Explain.

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Expert Solution

Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2008 balance sheet. An important concept that accountants follow is the cost principle. The cost principle states that assets should be recorded at their cost. Cost has an important advantage over other valuations: it is reliable. Cost can be objectively measured and can be verified.

Karen Sommers Travel Agency must report land at $90,000, following the cost principle for reliability and objectivity.

Junaid answered 8 months ago
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