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Allen bought a warehouse to hold his excess inventory for $3,220,000 four years ago. Allen would have to pay $3,979,000 to buy a similar warehouse now. At which amount should Allen report the warehouse on a Balance Sheet prepared in accordance with GAAP (Generally Accepted Accounting Principles)?

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jepessoa

Answer:

$3,220,000

Explanation:

All assets have to be recorded at their cost basis, not their current fair market value.

Allen should have depreciated the value of the warehouse using a 39 year straight line depreciation for nonresidential real property = $82,564 depreciation expense per year x 4 years = $330,256.

Apparently Allen didn't record any depreciation expense for the warehouse, so he should use the cost basis.