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Palomar Paper Products purchased land in 1990 for $15,000 cash. The company has held the land since that time. In 2008 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increases by 60 percent from 1990 to 2008.
a. Assuming that Palomar made only these two land purchases, what dollar amount would appear in the land account on Palomar’s balance sheet as of December 31, 2008?
b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1990 buy the same amount of goods and services as $15,000 in 2008? If not, how much more or less, and why?
b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1990 buy the same amount of goods and services as $15,000 in 2008? If not, how much more or less, and why?
2 answers
Answer a
$30,000 amount would appear in the land account on Palomar's balance sheet as of December 31, 2014.
Answer b
Palomar used $15,000 cash to make each land purchase. No, it Would not $15,000 in 1996 buy the same amount of goods and services as $15,000 in 2014. As Prices in general increased by 60% from 1996 to 2014. The price of Land purchased in 1996 $15,000, but it price in 2014 would be $15,000 * 1.60 = $24,000
Answer C
If the stable dollar assumption were dropped it would affect the company income statement. Palomar Company’s land was a total of 30,000 for both lands but now the cost of both lands together has dropped to $24,000 meaning the company has loss $6,000 ($30,000-$24,000).
$30,000 amount would appear in the land account on Palomar's balance sheet as of December 31, 2014.
Answer b
Palomar used $15,000 cash to make each land purchase. No, it Would not $15,000 in 1996 buy the same amount of goods and services as $15,000 in 2014. As Prices in general increased by 60% from 1996 to 2014. The price of Land purchased in 1996 $15,000, but it price in 2014 would be $15,000 * 1.60 = $24,000
Answer C
If the stable dollar assumption were dropped it would affect the company income statement. Palomar Company’s land was a total of 30,000 for both lands but now the cost of both lands together has dropped to $24,000 meaning the company has loss $6,000 ($30,000-$24,000).
1 answer