A company purchased land for $80,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at

Question

Quizplus · Accepted Answer

The historical cost principle requires that all costs necessary to acquire an asset and prepare it for its intended use be included in the asset's cost. Therefore, the cost of the land includes the purchase price ($80,000), the real estate broker's commission ($5,000), and the cost of demolishing the old building ($7,000), totaling $92,000.

A Company Purchased Land for $80,000 Cash