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Journal Entries

You are the chief financial officer of a small company. At a recent meeting of the directors, an appraisal report was circulated showing the current market value of the company's property, plant, and equipment was $3,500,000. The same assets were listed on the company's balance sheet at $1,750,000. This figure represents historical costs of 5 to 15 years ago less accumulated depreciation. During the meeting, a director addressed the following question to you: "It seems reasonable to value these assets for accounting purposes at the market price set by an independent appraiser; what justification is there for leaving these assets on the books at historical cost?"

1. Prepare an answer to the director's question.
2. If U.S. GAAP allowed revaluation, how might you account for the revaluation? What would be the journal entries?

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