Wooden Box, Corp. bought land on the outskirts of Portland, Oregon for its factory in 1912 for $10,000. The company built the factory for $100,000 and the building was fully depreciated, torn down and replaced for $350,000 about fifteen years ago, and is now right in the heart of a rehabilitation zone in the city (the city grew around it). Recently an investor approached Wooden Box, Corp. and offered to buy the factory and land for $4,000,000 because it could be turned into loft apartments. The investor presented a bone fide written offer with earnest money, but the board of the Wooden Box, Corp. refused the offer. Assuming the building was being depreciated straight-line over 30 years with a $50,000 salvage value, accumulated depreciation would now be about $150,000. What is the definition of fair market value, and how does it apply to this situation? How should the building and land be shown on the balance sheet? What principle are you following in your recommendation? Do you think the presentation that you have chosen accurately reflects the financial position of the company? If not, why did you make that choice?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Wooden Box, Corp. bought land on the outskirts of Portland, Oregon for its factory in 1912 for $10,000. The company built the factory for $100,000 and the building was fully depreciated, torn down and replaced for $350,000 about fifteen years ago, and is now right in the heart of a rehabilitation zone in the city (the city grew around it). Recently an investor approached Wooden Box, Corp. and offered to buy the factory and land for $4,000,000 because it could be turned into loft apartments. The investor presented a bone fide written offer with earnest money, but the board of the Wooden Box, Corp. refused the offer.

Assuming the building was being depreciated straight-line over 30 years with a $50,000 salvage value, accumulated depreciation would now be about $150,000.

What is the definition of fair market value, and how does it apply to this situation?

How should the building and land be shown on the balance sheet? What principle are you following in your recommendation?

Do you think the presentation that you have chosen accurately reflects the financial position of the company? If not, why did you make that choice?

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