Good Company purchased a used machine by issuing 1,000 shares of its common stock to the seller. Good's stock is traded on the NYSE. On the date of purchase, its price was quoted at $42 per share, making the value of the stock issued to purchase the machine equal to $42,000 (1,000 shares 3 $42). Good had the machine appraised. The appraiser estimates its value at $50,000.
According to SFAC No. 2, amounts reported in published financial statements should satisfy the qualitative characteristics of relevance and reliability. You are an investor trying to decide whether to invest in Good common stock. Which value-$42,000 or $50,000-is more relevant to your decision to invest? Which is more reliable? Explain your answers to both questions. In your answer, describe what relevance and reliability mean and how each valuation is thus more relevant or more reliable than the other.