Question

1.6 Harper Travel Agency purchased land for $85,000 cash on December 10, 2015. At December 31, 2015, the land's value has increased to $93,000. What amount should be reported for land on Harper's balance sheet at December 31, 2015?

Answer 1

Answer:

$85,000

Explanation:

In the balance sheet, a company records the value of assets at their historical cost. Assets are recorded in the balance sheet at the price that they were acquired.  Even if a company has strong reasons to believe that the value of an asset has increased, It cannot adjust its value in the books.

Harper will record the value of the land at $85,000.  $93,000 represents the fair value of the property. Harper cannot record the fair value in the balance sheet. The fair value is only used when disposing of the property. The only way of verifying the fair value is by selling the property.