Question

Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $98,453. The Focus Company initially offered to buy the land for $112,661. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $103,108. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company? a.$112,661 b.$103,108 c.$212,000 d.$98,453

Answer 1

c.$212,000

Step-by-step explanation:

The historical cost principle requires that assets are initially and continuously accounted for using the cost of purchase, also known as the historical cost of the asset.

The actual value of the asset is the net book value which is the difference between the historical cost and the accumulated depreciation of the asset

As such, using the historical cost of the asset, the value to be recorded is $212,000 being the purchase price of the asset.