Chapter 1, Problem 6DQ

(a)

To determine

Cost concept: This is an accounting concept which states that the actual cost paid in receipt of the asset is the reliable measure and hence assets and services should be recorded at actual cost or historical cost.

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

$\begin{array}{c}\text{Assets = Liabilities + Owners' Equity}\\ \text{Assets = Liabilities+}\left\{\begin{array}{l}\left(\begin{array}{l}\text{Owners' }\\ \text{investments}\end{array}\right)\text{+}\left(\begin{array}{l}\text{Owners' }\\ \text{withdrawals}\end{array}\right)+\left(\text{Revenues}\right)–\\ \left(\text{Expenses}\right)\end{array}\right\}\end{array}$

To indicate: If the amount at which the land is recorded should be changed according to the appraised value of land

(b)

To determine

To indicate: The effect of sale of land for $2,125,000, on the accounting equation.