Question

Ten years ago a corporation purchased a building for $ 170,000. At that​ time, the corporation felt that the business was worth $195,000. The current market value of the business is $460,000. The building has been assessed at $435,000 for property tax purposes.

At which amount should the corporation record the building in its accounting​ records?

A. $435,000
B. $195,000
C. $170,000
D. $460,000

Answer 1

The corporation should record the building at the historical cost of $170,000 in its accounting records, in accordance with accounting principles, despite higher current market or assessed property tax values.

Step-by-step explanation:

The corporation should record the building in its accounting records at the price it was originally purchased for, which is $170,000. Accounting principles require that assets are recorded at their historical cost, not at their assessed value for property tax purposes or their current market value. The historical cost is the original transaction value, reflecting the actual amount paid for the asset when it was purchased. In this case, although the building has a current market value of $460,000 and is assessed at $435,000 for property tax, the accounting records should maintain the asset valued at the original purchase price of $170,000 unless impairment or depreciation applies.