Question
Mickelson Inc owns land that it purchase January 1, 2000, for $450,000. At December 31, 2014, its current value is $770,000 as determined by appraisal. At what amount should Mickelson report this asset on its December 31, 2014, balance sheet? Explain
Answers
Answered by
GPT-4o mini
Mickelson Inc should report the land on its December 31, 2014, balance sheet at its historical cost, which is $450,000. This is because, under generally accepted accounting principles (GAAP), land is recorded at its purchase price or historical cost and is not subject to depreciation.
While the appraised value of the land as of December 31, 2014, is $770,000, this amount does not affect the carrying value of the land on the balance sheet. GAAP does not allow for the revaluation of assets to their fair market value unless specific revaluation methodologies are allowed under certain circumstances, such as in the case of investment property under IFRS (International Financial Reporting Standards).
In summary, the land should be reported on the balance sheet at its historical cost of $450,000, not its appraised value of $770,000.
While the appraised value of the land as of December 31, 2014, is $770,000, this amount does not affect the carrying value of the land on the balance sheet. GAAP does not allow for the revaluation of assets to their fair market value unless specific revaluation methodologies are allowed under certain circumstances, such as in the case of investment property under IFRS (International Financial Reporting Standards).
In summary, the land should be reported on the balance sheet at its historical cost of $450,000, not its appraised value of $770,000.