You manage a real estate investment company. One year ago, the company purchased 10 parcels of land distributed throughout the community for $12.0 million each. A recent appraisal of the properties indicates that five of the parcels are now worth $9.8 million each, while the other five are worth $18.0 million each. Ignoring any income received from the properties and any taxes paid over the year, calculate the investment company's accounting earnings and its economic earnings in each of the following cases: a. The company sells all of the properties at their appraised values today. b. The company sells none of the properties. c. The company sells the properties that have fallen in value and keeps the others. d. The company sells the properties that have risen in value and keeps the others. Note: Negative amounts should be indicated by parentheses. Enter your answers in millions. Accounting Economic Income (million) Income (million) Case a. b. $ 0 C. d.

You manage a real estate investment company. One year ago, the company purchased 10 parcels of land distributed throughout the community for $12.0 million each. A recent appraisal of the properties indicates that five of the parcels are now worth $9.8 million each, while the other five are worth $18.0 million each. Ignoring any income received from the properties and any taxes paid over the year, calculate the investment company's accounting earnings and its economic earnings in each of the following cases: a. The company sells all of the properties at their appraised values today. b. The company sells none of the properties. c. The company sells the properties that have fallen in value and keeps the others. d. The company sells the properties that have risen in value and keeps the others. Note: Negative amounts should be indicated by parentheses. Enter your answers in millions. Accounting Economic Income (million) Income (million) Case a. b. $ 0 C. d.

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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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

You manage a real estate investment company. One year ago, the company purchased 10 parcels of land distributed throughout the
community for $12.0 million each. A recent appraisal of the properties indicates that five of the parcels are now worth $9.8 million
each, while the other five are worth $18.0 million each. Ignoring any income received from the properties and any taxes paid over the
year, calculate the investment company's accounting earnings and its economic earnings in each of the following cases:
a. The company sells all of the properties at their appraised values today.
b. The company sells none of the properties.
c. The company sells the properties that have fallen in value and keeps the others.
d. The company sells the properties that have risen in value and keeps the others.
Note: Negative amounts should be indicated by parentheses. Enter your answers in millions.
Accounting
Economic
Income (million) Income (million)
Case
a.
b.
$
0
C.
d.

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