Bill Is Restoring a Car and Has Already Spent $4000

question 223

Multiple Choice

Bill is restoring a car and has already spent $4000 on the restoration.He expects to be able to sell the car for $5800.Bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers.He could also sell the car now,without completing the additional work,for $3800.What should he do?

• A) He should sell the car now for $3800.
• B) He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $5800.
• C) He should complete the additional work and sell the car for $5800.
• D) It does not matter which action he takes since the outcome will be the same either way.

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Definitions:

Fair Value

The capital acquired from the sale of an asset or expended in the transfer of a liability in a smooth transaction among market intermediaries on the measurement date.

Acquisition

The process by which one company takes over the control of or purchases another company.

Appraised Value

An estimate of the fair value of an asset, determined by a professional appraiser based on inspection and analysis of the asset and market conditions.

Consolidated Common Stock

The combined total of common stock held by a parent company and its subsidiaries, presented as a single item in consolidated financial statements.