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 $88,017. The Focus Company initially offered to buy the land for $113,378. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $103,980. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company? $212,000 $113,378 $103,980 $88,017

Answer 1

Answer:

$212,000

Explanation:

The cost principle required that an item of property, plant and equipment be recognized at the cost (historical cost). As such, the cost consideration for an item/asset is the cost to the acquiring party.

Based on the above, the amount to be recorded by Focus company is $212,000. Other costs given in the question will not be considered based on the cost principle.