Question

Horace Johnson decides to start his CPA practice as a professional corporation. the corporation purchased an office building for $35000. the real estate agent said the building was worth $50000 in the current market. the corporation recorded the building as a $50000 asset because horace believes that is the real value of the building, whicj of the following concepts or principles of accounting is being violated.

A. economic entity assumption B. going concern assumption C. cost principle D. monetary unit assumption

Answer 1

Solution to the above question:-

Economic Entity Assumptions is the accounting principle which states that the accounting records should be maintained separately for each line of business and also separates the transaction between the owner's personal transaction and the business transactions.

Going Concern Assumption states that the company will be continued till indefinite time period. It is one the assumptions basis to prepare financial statement.

Cost Principle states that the assets must be recorded at the purchased value rather than the market value.The market value should not be considered while recording the value in the books of accounts.

Monetary unit assumptions states that all the transactions recorded in the books of accounts can be measured in the terms of money by a currency only.

Thus from the above deifinition of the accounting assumptions, it is clearly evident that Horace Johnson has violated Cost Principle by recording the office building at market value ($50,000) rather than at cost ($35,000).

Answer:- C. Cost Principle