Question

On May 7, Carpet Barn Company offered to pay $75,190 for land that had a selling price of $90,000. On May 15, Carpet Barn accepted a counteroffer of $85,970. On June 5, the land was assessed at a value of $100,000 for property tax purposes. On December 10, Carpet Barn Company was offered $127,000 for the land by another company. At what value should the land be recorded in Carpet Barn Company's records

Answer 1

$85,970

Step-by-step explanation:

The cost of a fixed asset includes all cost incurred in making the asset available for use. These includes the cost of the item net all discounts, sales tax, freight cost etc. Fixed assets are carried at their historical cost.

Hence for Carpet Barn Company's records, the cost of the land will be at historical cost of $85,970.

The key consideration is that the asset is not carried at an amount higher than it's recoverable value.