Recognizing Changes in Asset Values A] and Jana Bushweiler purchased Acme Cleaning Supplies, Inc., approximately nine years ago. The previous owners had planned to expand the operations from a small midwestern business to a national supply chain and, just before Al and Jana purchased the company, acquired property in Florida, California, and Oregon. Although the property has not yet been used for expansion purposes, the value of the property in all three states has increased substantially since Al and Jana acquired Acme. In preparing the financial statements for Acme Cleaning Supplies for the current period, Al and Jana plan to report the current values of the property in the balance sheet and show the full amount of the increase as “other income” in the income statement for this year.

a. How is land and other property normally valued for financial statement purposes?

b. When is an increase in the value of property included in the income statement?

c. When is a decrease in the value of property included in the income statement?

d. If a CPA is hired to audit the financial statements of Acme Cleaning Supplies, how is the auditor likely to react to the proposal?