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 $220,000. 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 concept, at what amount should the land be recorded in the accounting records of Focus Company?
a. $232,000
b. $212,000
c. $220,000
d. $177,000

Answer 1

Answer:

b. $212,000

Explanation:

The cost concept entails the initial recognition of an asset at the historical cost or actual cost of purchase.

For Focus company, the amount to be recorded for the land purchased from Donner company using the cost concept is not the market value of the land at $220,000 nor the initial offered price of $177,000.

The cost of another piece of land on the same block sold for $232,000 is also not the amount but the actual cost paid for the property which is $212,000.

Hence the right option is b. $212,000.