How many of the following statements regarding the concepts underlying the balance sheet are true?
A company buys land for $5 million dollars in 1983. The land is now worth $15 million. The company should increase the book value of this asset on its balance sheet to reflect its current value.
All events affecting the current value of a company are reported on the balance sheet.
According to the cost principle, assets are valued at their replacement cost.
A) None
B) One
C) Two
D) Three

Question

Quizplus · Accepted Answer

The first statement is false because the balance sheet reflects historical cost, not current market value. The second statement is false because not all events affecting a company's value are reported on the balance sheet; only those that meet certain criteria. The third statement is false because the cost principle states that assets are recorded at their original cost, not replacement cost.

How Many of the Following Statements Regarding the Concepts Underlying