Question

Burr Publishers purchased a building on March 20, 20Y1, for $160,000. Other amounts related to this purchase are as follows:

Price listed by seller on January 1, 20Y1
$180,000
Burr Publishers' initial offer to buy on January 31, 20Y1
$140,000
Purchase price on March 20, 20Y1
$160,000
Estimated resale price on December 31, 20Y3
$220,000
Assessed value for property taxes, December 31, 20Y3
$190,000
a. $220,000
b. $180,000
c. $160,000
d. $140,000

Answer 1

The purchase price recognized by Burr Publishers for the building bought on March 20, 20Y1, is $160,000. This is the amount actually paid at the time of the transaction, regardless of previous offers, assessed value, or future estimated resale values.

Step-by-step explanation:

The correct amount that should be recognized for the purchase price of Burr Publishers' building is $160,000. This is because the purchase price is the actual amount paid for the property when the transaction occurred on March 20, 20Y1. The initial offer, the price listed by the seller at an earlier date, the estimated resale price, and the assessed value for property taxes are all irrelevant to determining the amount to be recorded for the purchase price of the building in the accounts of Burr Publishers.

Similarly, from the additional unrelated examples provided, we can determine that Freda's house would now sell for $250,000, though it was purchased for $150,000; Ben's equity in his house is now $100,000 since the value of the house is $160,000 and he owes $60,000 to the bank after paying off $20,000 of the loan.