B is corrent. The cost principle requires that assets be recorded at historical cost. The purchased cost is deemed to be an objective measure of fair market value. Therefore, the assessed valuation has no impact on the recorded cost. Historical cost includes all costs incident to the acquisition of the asset. In this case, Saba Co. gave up $800,000 of cash and assumed liabilities of $200,000. The assumption of a liability is the equivalent of a payment of cash. The total amount incurred in acquiring the land was $1,000,000 ($800,000 + $200,000).
A is incorrect. The cost principle requires that assets be recorded at historical cost. The purchased cost is deemed to be an objective measure of fair market value. Therefore, the assessed valuation has no impact on the recorded cost. Historical cost includes all costs incident to the acquisition of the asset. In this case, Saba Co. gave up $800,000 of cash and assumed liabilities of $200,000. The assumption of a liability is the equivalent of a payment of cash. The total amount incurred in acquiring the land was $1,000,000 ($800,000 + $200,000).
C is incorrect. The cost principle requires that assets be recorded at historical cost. The purchased cost is deemed to be an objective measure of fair market value. Therefore, the assessed valuation has no impact on the recorded cost. Historical cost includes all costs incident to the acquisition of the asset. In this case, Saba Co. gave up $800,000 of cash and assumed liabilities of $200,000. The assumption of a liability is the equivalent of a payment of cash. The total amount incurred in acquiring the land was $1,000,000 ($800,000 + $200,000).
D is incorrect. The cost principle requires that assets be recorded at historical cost. The purchased cost is deemed to be an objective measure of fair market value. Therefore, the assessed valuation has no impact on the recorded cost. Historical cost includes all costs incident to the acquisition of the asset. In this case, Saba Co. gave up $800,000 of cash and assumed liabilities of $200,000. The assumption of a liability is the equivalent of a payment of cash. The total amount incurred in acquiring the land was $1,000,000 ($800,000 + $200,000).
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