Assume Walmart acquires a tract of land on January 1, 2016, for $100,000 cash. On December 31, 2016, the current market value of the land is $150,000. On December 31, 2017, the current market value of the land is $120,000. The firm sells the land on December 31, 2018, for $180,000 cash. Ignore income taxes. Indicate the effect on the balance sheet and income a. Valuation of the land at acquisition cost until sale of the land (Approach 1) b. Valuation of the land at current market value and including market value changes each year in net income (Approach 2) c. Valuation of the land at current market value but including unrealized gains d. Why is retained earnings on December 31, 2018, equal to $80,000 in all three cases despite the reporting of different amounts of net income each year?
Assume Walmart acquires a tract of land on January 1, 2016, for $100,000 cash. On December 31, 2016, the current market value of the land is $150,000. On December 31, 2017, the current market value of the land is $120,000. The firm sells the land on December 31, 2018, for $180,000 cash. Ignore income taxes. Indicate the effect on the balance sheet and income a. Valuation of the land at acquisition cost until sale of the land (Approach 1) b. Valuation of the land at current market value and including market value changes each year in net income (Approach 2) c. Valuation of the land at current market value but including unrealized gains d. Why is retained earnings on December 31, 2018, equal to $80,000 in all three cases despite the reporting of different amounts of net income each year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume Walmart acquires a tract of land on January 1, 2016, for $100,000 cash. On December 31, 2016, the current market value of the land is $150,000. On December 31, 2017, the current market value of the land is $120,000. The firm sells the land on December 31, 2018, for $180,000 cash.
Ignore income taxes. Indicate the effect on the balance sheet and income
a. Valuation of the land at acquisition cost until sale of the land (Approach 1)
b. Valuation of the land at current market value and including market value changes each year in net income (Approach 2)
c. Valuation of the land at current market value but including unrealized gains
d. Why is
Transcribed Image Text:b. Valuation of the land at current market value and including market value changes each year in net income
(Approach 2)
2016
2017
2018
Dr
Cr
Dr
Cr
Dr
Cr
Cash
Land
Gain on land
Loss on land
Transcribed Image Text:c. Valuation of the land at current market value but including unrealized gains and losses in accumulated other
comprehensive income until sale of the land (Approach 3)
2016
2017
2018
Dr
Cr
Dr
Cr
Dr
Cr
Cash
Land
Gain on sale of land
Unrealized gain - OCI
Unrealized loss - OCI
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