Garrix Animal Supplies wanted to purchase a parcel of land from Sinatra Trash Can Company as...

Garrix Animal Supplies wanted to purchase a parcel of land from Sinatra Trash Can Company as the future site for a storage facility. Sinatra Trash Can Company listed the land at a price of $310,000. Garrix Animal Supplies was convinced that the land was worth $285,000, a price that was supported by an independent appraiser. The companies eventually agreed to a price of $298,750. Garrix closed the deal on March 14, 2016 at which time it incurred a broker commission of $11,950. During 2016 the fair value of the land appeared to rise quickly as Garrix Animal Supplies received five separate offers for the land at prices ranging from $315,000 to $325,000. The Company rejected the offers but re-hired the appraiser to estimate the land?s value. At December 31, 2016, the appraiser presented a report indicating the land had an estimated fair value of $317,500. In its GAAP balance sheet at December 31, 2016, Garrix Animal Supplies would report the land at a total value of:

Solutions

Expert Solution

Cost Principle - Assets are to be booked at the cost paid for, whether cash or other than cash. For this reason Financial Asset are booked at historical cost not the inflated price.

And because of going concern concept and matching concept Fixed asset are amortied/depreciated over a period of time, but land is not a depriciable asset.

Conservatism principle- If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount.The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains.

Here the cost incurred for puchasing the land was $ 310,700 (i.e. Purchase price $298,750+ broker commissions $11,950). Increse in value of the land should not be accounted for to follow cost and coservatism principle Income will be recognised in the books of account when actual sale made.

So, Garrix Animal Supplies would report the land value at $310,700 in its GAAP balance sheet as at Dec 31, 2016.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A and B, both dealers in real estate, find a parcel of land to purchase for...

A and B, both dealers in real estate, find a parcel of land to purchase for $100,000 as an investment. They believe it can be sold in 2 years for $200,000. They either will buy the land as tenants-in-common for $100,000 and jointly contribute it to a partnership or contribute $50,000 each to an equal partnership, which then will buy the land. (a) How should they structure the transaction? (b) Assume the AB partnership purchased the land for $100,000 in...

Carlson Development owns a prime parcel of land that can be developed into a residential, commercial,...

Carlson Development owns a prime parcel of land that can be developed into a residential, commercial, or industrial complex. Carlson plans to manage each of the projects for seven years and then cash out. After considerable research, Carlson estimates that cash flows from the three alternative projects are as follows: Cash Flows In Millions Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Residential (25.0) 2.0 2.0 2.0 2.0 2.0 2.0...

Grady Enterprises is looking at two project opportunities for a parcel of land the company currently...

Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1 comma 410 comma 000 with cash flows over the next six years of $230 comma 000 (year one), $270 comma 000 (year two), $ 290 comma 000 (years three through five), and $1 comma 730 comma...

Grady Enterprises is looking at two project opportunities for a parcel of land the company currently...

Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,570,000 with cash flows over the next six years of $180,000 (year one), $280,000 (year two), $260,000 (years three through five), and 1,740,000 (year six), at which point Grady plans to sell the restaurant. The sports facility...

On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000.

On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000. The book value of the land on Apache's books was $1,200,000. Terms of the sale required a down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services after the sale. Requirements: a. How much gross profit will Apache recognize...

Supplies are dropped from an airplane to land at a certain point. The velocity of the...

Supplies are dropped from an airplane to land at a certain point. The velocity of the package at release from the airplane is the speed of the airplane, v0x=250ft/s. The acceleration of the package due to gravity isay= -32.2 ft/s2. The displacement in the y direction can be found using the following equation: y - y0 = v0yt + ½ayt2. The final position of the package (y) is on the ground, and y0 represents the height of the plane when...

An animal psychologist wanted to determine whether fish can remember things over a period of time....

An animal psychologist wanted to determine whether fish can remember things over a period of time. Fifty goldfish were randomly assigned to one of two groups- Group A and Group B. Group A was placed in a trap, inside their tank, and food was placed outside the trap (to motivate the fish to want to get out of the trap). On the average, it took 45 minutes for the fish to figure out how to escape the trap. Group B...

You are a Supplier: A retailer requests to purchase supplies on credit from your company. You...

You are a Supplier: A retailer requests to purchase supplies on credit from your company. You have no prior experience with this retailer. The retailer’s current ratio is 2.1, its acid-test ratio is 0.5, and inventory makes up most of its current assets. Do you extend credit? You are the Financial Officer: Your company has a 36% gross margin ratio and a 17% net profit margin ratio. Industry averages are 44% for gross margin and 16% for net profit margin....

The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas.

The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost of $30,000. According to an independent appraisal, the land currently is worth $72,000. Tinsley paid $14,000 in cash to complete the transaction. Required: 1. What is the fair value of the new parcel of land received by Tinsley? 2. Prepare the journal entry to record the exchange...

You can purchase a tract of land for $75,000 that you believe you can develop and...

You can purchase a tract of land for $75,000 that you believe you can develop and sell as a residential development. Your development costs are $60,000 to be incurred immediately. You expect to sell all the lots in years 3-5 at a net income of $70,000, $85,000, and $68,000 respectively. Your required rate of return is 12 percent. Do you purchase the tract of land?

Subjects