Donner Company is selling a piece of land adjacent to their 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 concept, at what amount should the land be recorded in the accounting records of Focus Company?
A) $177,000
B) $212,000
C) $220,000
D) $232,000

Question

Quizplus · Accepted Answer

According to the cost concept, the land should be recorded at the amount it was acquired for, which in this case is $212,000. The market value and the amount paid for a property can differ, and it is the amount paid (not the market value) that is recorded in the accounting records as the asset's cost. The fact that another piece of land on the same block sold for a higher price does not affect the cost of the land purchased by Focus Company.

Donner Company Is Selling a Piece of Land Adjacent to Their