The Borg, Inc. acquired property on the planet Zygon. Borg paid $300,000 for the property. The Borg held the property for 10 years during which time the Borg collectively estimated that the property appreciated in market value approximately $10,000 per year. At the end of year 10, the Borg sold the property for $400,000. Which of the following is a true statement concerning this information under Generally Accepted Accounting Principles? (Hint: think about monetary versus non-monetary assets).

a.   Borg should recognize $10,000 of appreciation each year as the property increases in value. When the land is sold at the end of the 10th year, cash would go up by $400,000 and land would go down by $400,000.

b.   Borg cannot recognize appreciation in the value of the land. When the land is sold at the end of the 10th year, cash would go up by $400,000 and retained earnings would go up by $400,000.

c.   Borg cannot recognize appreciation in the value of the land. When the land is sold at the end of the 10th year, cash will go up by $300,000 and land will go down by $300,000.

d.   Borg cannot recognize appreciation in the value of the land. When the land is sold at the end of the 10th year, cash will go up by $400,000, land will go down by $300,000 and equity will go up by $100,000.

e.   None of the above. The Borg would never pay for something. They would just take it and assimilate the previous owner into their hive mind. Resistance is futile.

Answer rating: 100% (QA)

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