If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:
A) $140,000.
B) $137,000.
C) $150,000.
D) $138,500.
E) $95,000.

Question

Quizplus · Accepted Answer

The land should be recorded at the cost of purchase, which is $137,000. This represents the amount that the purchaser paid for the land and is the most reliable indicator of its value. The other values (seller's acquisition cost, assessed value, and perceived value by the purchaser) are less relevant in determining the initial cost basis for the land.

If a Company Is Considering the Purchase of a Parcel