Historical cost versus market value
Sun Company purchased land in April 2008 at a cost of $600,000. The estimated market value of the land is $700,000 as of December 31,2011. Sun purchased marketable equity securities (bought the common stock of a company that is independent of Sun) in May 2008 at a cost of $320,000. These securities have a market value of $360,000 as of December 31, 2011. Generally accepted accounting principles require that the land be shown on the December 31, 2011, balance sheet at $600,000, while the marketable equity securities are required to be reported at $360,000.
Required
Write a brief memo that explains the contradiction regarding why GAAP requires Sun to report historical cost with respect to the land versus market value with respect to the marketable securities. This answer may require speculation on your part. Use your knowledge about the historical cost and reliability concepts to formulate a logical response.
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