Question

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?

Answer 1

Answer:

$212,000

Explanation:

The cost principle is an accounting concept fro recording asset in the books of accounts. According to this principle, assets should be recorded at the actual price paid for the item.  The phrase 'cost principle' is also referred to as the historical cost principle.

In the case of the Donnar company, the amount to be recorded should be $212,000. This is the agreed price. It is the actual amount that the Donner Company will pay for the land. The cost recorded is expected to stay constant unless amended through amortization, depreciation, or appreciation in value.