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?

Question

Quizplus · Accepted Answer

The cost principle requires that assets be recorded at their acquisition cost. In this case, Focus Company purchased the land for $212,000, which is the amount that should be recorded in its accounting records. This is because the purchase price is the best evidence of the fair value of the land at the time of acquisition, even though the market value was reported to be higher ($220,000) or another piece of land sold for a higher price ($232,000). Therefore, the correct answer is B.

Donner Company Is Selling a Piece of Land Adjacent to Its