{"id":184367,"date":"2025-01-20T19:41:13","date_gmt":"2025-01-20T19:41:13","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=184367"},"modified":"2025-01-20T19:41:15","modified_gmt":"2025-01-20T19:41:15","slug":"donner-company-is-selling-a-piece-of-land-adjacent-to-its-business-premises","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/20\/donner-company-is-selling-a-piece-of-land-adjacent-to-its-business-premises\/","title":{"rendered":"Donner Company is selling a piece of land adjacent to its business premises"},"content":{"rendered":"\n

Donner Company is selling a piece of land adjacent to its business premises.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 An appraisal reported the market value of the land to be $220,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 The Focus Company initially offered to buy the land for $177,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 The companies settled on a purchase price of $212,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 On the same day, another piece of land on the same block sold for $232,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company?<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Under the cost concept<\/strong> in accounting, assets are recorded in the accounting records at their acquisition cost\u2014the actual amount paid to acquire the asset. In this case, Focus Company agreed to purchase the land for $212,000<\/strong>, and this amount represents the acquisition cost.<\/p>\n\n\n\n

Correct Answer:<\/h3>\n\n\n\n

The land should be recorded in the accounting records of Focus Company at $212,000<\/strong>.<\/p>\n\n\n\n

Explanation:<\/h3>\n\n\n\n

The cost concept<\/strong> is a fundamental principle in accounting that requires assets to be recorded at their historical cost\u2014the price actually paid for the asset\u2014rather than their current market value or any appraised value. This ensures objectivity and verifiability in the financial records, as the acquisition cost is supported by clear documentation, such as purchase agreements or receipts.<\/p>\n\n\n\n

In this scenario:<\/p>\n\n\n\n

    \n
  • The appraised market value<\/strong> of the land was $220,000. This represents an independent estimate of the land’s value but does not determine the accounting value.<\/li>\n\n\n\n
  • Focus Company initially offered $177,000, but this was not the agreed-upon purchase price, so it is irrelevant for recording purposes.<\/li>\n\n\n\n
  • The agreed purchase price<\/strong> was $212,000. This is the amount Focus Company actually paid to acquire the land, making it the amount to be recorded in the accounting records under the cost concept.<\/li>\n\n\n\n
  • The sale of another piece of land on the same block for $232,000 does not impact the recording of this land purchase, as it pertains to a separate transaction and property.<\/li>\n<\/ul>\n\n\n\n

    Recording the land at its purchase price of $212,000 reflects adherence to the cost concept and ensures the accounting records are reliable and consistent with generally accepted accounting principles (GAAP). Any changes in the land’s market value in the future would be recognized only under specific accounting methods, such as revaluation models, if applicable.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Donner Company is selling a piece of land adjacent to its business premises.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 An appraisal reported the market value of the land to be $220,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 The Focus Company initially offered to buy the land for $177,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 The companies settled on a purchase price of $212,000.\u00c3\u201a\u00c2 \u00c3\u201a\u00c2 On the same day, another piece […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-184367","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/184367","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=184367"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/184367\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=184367"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=184367"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=184367"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}