Question

A construction company paid $81,000 cash for land used in the business. At the time of purchase, the land had a list price of $88,000. When the balance sheet was prepared, the fair value of the land was $85,000. At what amount should the land be reported on the balance sheet of the company?

A. $68,000
B. $85,000
C. $81,000
D. $84,500

Answer 1

The land should be reported on the company's balance sheet at the historical cost of $81,000, which is the amount actually paid for it.

Step-by-step explanation:

The land should be reported on the balance sheet of the company at the amount paid for the purchase, which is $81,000. Although the list price was $88,000 and the fair value at the time of balance sheet preparation was $85,000, accounting principles require that assets be recorded at their historical cost. This is known as the cost principle, which mandates that assets are listed on the financial statements at the cash amount (or the equivalent) at the time of the transaction.

The correct answer is C. $81,000.