Question

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded atA. $102,000.B. $97,000.C. $90,000.D. $95,000.

Answer 1

A. $102,000

Step-by-step explanation:

The computation of the cost of land under the cost principle is shown below:

= Purchase value of land + Real estate brokers' commission + demolishing an old building cost

= $90,000 + $5,000 + $7,000

= $102,000

Under the cost principle, the fixed should be recorded at cost. So, we consider the purchase value of land, commission and demolishing cost.