(L. OBJ. 6) Applying accounting concepts and principles [5—10 min]
Wendy Craven is the sole proprietor of a property management company near the campus of Pensacola junior College. The business has cash of $6,000 and furniture that cost $12,000 and has a market value of $16,000. Debts include accounts payable of $5,000. Wendy’s personal home is valued at $350,000 and her personal bank account has $9,000.
Requirements
1. Consider the accounting principles discussed in the chapter and define the principle that best matches the situation:
a. Wendy’s personal assets are not recorded on the property management company’s balance sheet.
b. Wendy records furniture at its cost of $12,000, not its market value of $16,000.
c. Wendy does not make adjustments for inflation.
d. The account payable of $5,000 is documented by a statement from the furniture company showing the business still owes $5,000 on the furniture. Wendy’s friend thinks she should only owe about $4,000. The account payable is recorded at $5,000.
2. How much equity is in the business?
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