Assume Walmart acquires a tract of land on January 1, 2009 for $100,000 cash. On December 31, 2009, the current market value of land is $150,000. On December 31, the current market value of land is $120,000. The firm sells the land on December 31, 2011 for $180,000 cash. Ignore income tax. Indicate the effects on the balance sheet and income statement of the preceding information for 2009, 2010, and 2011 under each of the following valuation methods (Part A-C). A. Valuation of the land at acquisition cost until sale of the land (Approach 1). B. Valuation of the land at current market value but including unrealized gains and losses in accumulated other comprehensive income until sale of land (Approach 2). C. Valuation of the land at current market value and including market value changes each year in net income (Approach 3). D. Why is retained earnings on December 31, 2011, equal to $80,000 in all three cases despite the reporting of different amount of net income each year?

See abelownswers as explained

Explanation:

A)

In 2009,

Particular Amount ($) Amount ($)

Land A/c Dr. 100,000

To Cash A/c 100,000

In 2010,

No effect on Income Statement

In 2011,

Particular Amount ($) Amount ($)

Cash A/c Dr. 180,000

To Gain on Sale of land A/c 80,000

To land A/c 100,000

B)

For 2009,

Land to be shown in Balance Sheet as $150,000.

No effect on Income Statement.

Date Particular Amount ($) Amount ($)

1/1/2009 Land A/c Dr. 100,000

To Cash A/c 100,000

12/31/2009 Land A/c Dr. 50,000

To Unrealized Gain A/c 50,000

For 2010,

Particular Amount ($) Amount ($)

Unrealized Gain A/c Dr. 30,000

To land A/c 30,000

(Shown in Balance Sheet = $120,000)

For 2011,

Income Statement - Profit on Sale of Land = $80,000

Particular Amount ($) Amount ($)

Cash A/c Dr. 180,000

Unrealized Gain A/c Dr. 20,000

To land A/c 120,000

To Gain on Sale of land A/c 80,000

C)

For 2009,

Land shown in Balance Sheet = $150,000

Income Statement also increase by $50,000

Date Particular Amount ($) Amount ($)

1/1/2009 Land A/c Dr. 100,000

To Cash A/c 100,000

12/31/2009 Land A/c Dr. 50,000

To increase in market value of land A/c 50,000

For 2010,

Land shown in Balance Sheet = $120,000

Particular Amount ($) Amount ($)

Decrease in market value of land A/c Dr. 30,000

To land A/c 30,000

For 2011,

Particular Amount ($) Amount ($)

Cash A/c Dr. 180,000

To Land A/c 120,000

To Gain in sale of Land A/c 60,000

D. Earnings on December 31,2011 is equal to $80,000 in all the cases as retained earnings is the difference between sale value and acquisition cost. It has no effect on the retained earnings, if market prices go up and down.,

acquisition cost is $100,000 and

Sale Value is $180,000.

amount of retained earnings is $180,000-100000

$80000