A company's plant and equipment consisted of land purchased in late 1985 for ($ 350,000), a building
Question:
A company's plant and equipment consisted of land purchased in late 1985 for \(\$ 350,000\), a building purchased in late 1987 for \(\$ 470,000\), and equipment purchased in late 1989 for \(\$ 85,000\). The general price index for December of the years 1985 through 1991 is as follows:
\section*{Required}
1. Assuming the above price index adequately represents end-of-year price levels, calculate the amount of each cost that would be shown on a historical cost/constant purchasing power balance sheet for
(a) December 31, 1990, and
(b) December 31, 1991. Ignore any accumulated depreciation.
2. Would the historical cost/constant purchasing power income statement for 1991 disclose any purchasing power gain or loss as a consequence of holding the above assets? If so, how much?
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