Asked by Johnny Gomez on Jun 08, 2024
Verified
Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. The Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company?
A) $177,000
B) $212,000
C) $220,000
D) $232,000
Cost Principle
An accounting principle that states assets should be recorded at their cost at the time of purchase, not at their current value.
Accounting Records
Documents and records that a business maintains to keep track of its financial transactions, assets, and liabilities.
Market Value
The current price at which an asset or company can be bought or sold in the marketplace.
- Acquire knowledge on the fundamentals of accounting related to measurement and cost evaluation.
Verified Answer
JT
Jordan TremblayJun 10, 2024
Final Answer :
B
Explanation :
According to the cost principle, assets should be recorded at the amount paid for them. As Focus Company agreed to purchase the land for $212,000, this is the amount that should be recorded in their accounting records. The market value of $220,000 and the price of the other piece of land sold is irrelevant since the cost principle is followed.
Learning Objectives
- Acquire knowledge on the fundamentals of accounting related to measurement and cost evaluation.