Palomar Paper Products purchased land in 1990 for $15,000 cash. The company has held the land since that time. In 2008 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increases by 60 percent from 1990 to 2008.

Question

Palomar Paper Products purchased land in 1990 for $15,000 cash. The company has held the land since that time. In 2008 Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increases by 60 percent from 1990 to 2008.

a. Assuming that Palomar made only these two land purchases, what dollar amount would appear in the land account on Palomar’s balance sheet as of December 31, 2008?

b. Palomar used $15,000 cash to make each land purchase. Would $15,000 in 1990 buy the same amount of goods and services as $15,000 in 2008? If not, how much more or less, and why?

c. Explain how one could adjust the dollar amount reported in the land account as of December 31, 2008, if stable dollar assumption were dropped.

Answer 1

If you tried to copy and paste something (especially if it’s a numbered, lettered, or bulleted list), it did not work. You’ll need to type it in by hand.