Donner Company is selling a piece of land adjacent to their business. 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 concept, what is the amount that will be used to record this transaction in the accounting records?
A) $177,000
B) $212,000
C) $220,000
D) $232,000

Question

Quizplus · Accepted Answer

The cost concept in accounting dictates that the initial cost of an asset is recorded as the value in the accounting records. In this case, the agreed-upon purchase price of $212,000 is the initial cost of the land and the amount that will be used to record the transaction in the accounting records. The market value and the selling price of the adjacent piece of land are not relevant to the cost concept and do not affect the initial cost of the land purchased by Donner Company. Therefore, choices A, C, and D can be ruled out.

Donner Company Is Selling a Piece of Land Adjacent to Their