Question
Land purchased many years ago is reported on the __ balance sheet at its original cost \( \begin{array}{l}\text { balance sheet at its higher fair value } \\ \text { income statement at its original cost } \\ \text { income statement at its higher fair value }\end{array} \)
Ask by Vargas Guerrero. in the United States
Jan 25,2025
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Tutor-Verified Answer
Answer
Land is reported on the balance sheet at its original cost.
Solution
The correct answer is that land purchased many years ago is reported on the **balance sheet at its original cost**.
This is because, under the historical cost principle, assets are recorded at their original purchase price and are not adjusted for changes in market value. Therefore, the land would be listed on the balance sheet at the cost at which it was acquired, regardless of its current fair value.
To summarize:
- **Balance sheet at its original cost**: Correct
- **Balance sheet at its higher fair value**: Incorrect
- **Income statement at its original cost**: Incorrect (the income statement does not report asset values)
- **Income statement at its higher fair value**: Incorrect
Reviewed and approved by the UpStudy tutoring team
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Explain 
Simplify this solution Extra Insights
When land is purchased, it is recorded on the balance sheet at its original cost, not the current market value. This means that even if the land appreciates significantly over the years, the value recorded remains static unless the asset is sold. This conservative accounting approach helps maintain a stable financial picture, adhering to the historical cost principle. On the income statement, the land will not show up at all unless there is a sale or any impairment. The operational expenses related to the land can affect the income statement, but the value of the land itself just sits quietly on the balance sheet, like an unassuming giant waiting for its moment in the spotlight!
