In Year 2, the Denim Company bought an acre of land that cost $16,000. In Year 5, another company purchased a nearby acre of land for $29,000 and a different company purchased another nearby acre of land for $27,000. As a result, an appraiser estimated that the acre owned by Denim had increased in value to $28,000. If Denim prepares a balance sheet at the end of Year 5, the acre of land that it owns should be reported at:

(A) $16,300

(B) $29,300

(C) $27,300

(D) The average of all of the amounts.

A) $16,300

Explanation:

According to the concept of historical cost, long-term assets are recorded at their historical price on a company's balance sheet, since the historical cost is the cost of the 'product' when originally acquired by the company the answer should be $16,000, the closest answer is $16,300 it may be an error in the question or the extra $300 are related to the original price paid for the property.

Note: the price of the property has indeed increased, but the increment shouldn't be reported on the balance sheet of the company accordingly to the principle of historical cost (GAAP).

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