The initial value to be assigned to an asset is not always obvious. A city acquired general capital assets as follows: It purchased new construction equipment. List price was $400,000, but the city was granted a 10 percent “government discount.” The city also incurred $12,000 in transportation costs and paid $4,000 to its own employees to customize the equipment.It received a donation of land to be set aside for a nature preserve. The land had cost the donor $300,000. At the time of the contribution, it was valued on the city’s tax rolls at $1.7 million. However, independent appraisers estimated its fair value at $1.9 million.It constructed a new maintenance facility at a cost of $2 million. During the period of construction, the city incurred an additional $110,000 in interest on funds borrowed to finance the construction.- Indicate the value that the government should assign to these assets. Justify briefly the value you assigned and, as appropriate, indicate any other acceptable alternatives.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The initial value to be assigned to an asset is not always obvious.

A city acquired general capital assets as follows:

It purchased new construction equipment. List price was $400,000, but the city was granted a 10 percent “government discount.” The city also incurred $12,000 in transportation costs and paid $4,000 to its own employees to customize the equipment.
It received a donation of land to be set aside for a nature preserve. The land had cost the donor $300,000. At the time of the contribution, it was valued on the city’s tax rolls at $1.7 million. However, independent appraisers estimated its fair value at $1.9 million.
It constructed a new maintenance facility at a cost of $2 million. During the period of construction, the city incurred an additional $110,000 in interest on funds borrowed to finance the construction.

- Indicate the value that the government should assign to these assets. Justify briefly the value you assigned and, as appropriate, indicate any other acceptable alternatives.

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