In 1990,Johnson Company Purchased a Building for $170,000

question 82

Multiple Choice

In 1990,Johnson Company purchased a building for $170,000.In 2020,a real estate professional says the building has a fair value of $1,000,000.In 2020,a similar building down the street recently sold for $900,000.What value,before consideration of accumulated depreciation,is reported for the building on the balance sheet at December 31,2020?

• A)$170,000
• B)$585,000
• C)$900,000
• D)$1,000,000

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Definitions:

M&M Proposition II

A theory proposing that the cost of equity increases with the level of debt in a company, making the firm's weighted average cost of capital remain unchanged.

Cost of Equity

The return rate that shareholders require to invest in a company's equity, taking into account the risk associated with the investment.

Cost of Debt

The effective rate that a company pays on its current debt, incorporating both interest payments and any other required repayments.

Cost of Equity

The return that investors require for their investment in shares, representing the compensation for taking on the risk of investing in equity.