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
Related questions
Question
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
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education