Question

Michael McNamee is the proprietor of a property management​ company, Apartment​ Exchange, near the campus of Penscola State College. The business has cash of​ $8,000 and furniture that cost​ $9,000 and has a market value of​ $13,000. The business debts include accounts payable of​ $6,000. Michael's personal home is valued at​ $400,000, and his personal bank account has a balance of​ $1,200. Identify the principle or assumption that best matches the​ situation:

a. ​Michael's personal assets are not recorded on the Apartment​ Exchange's balance sheet.
b. The Apartment Exchange records furniture at its cost of​ $9,000, not its market value of​ $13,000.
c. The Apartment Exchange reports its financial statements in U.S. dollars.
d. Michael expects the Apartment Exchange to remain in operations for the foreseeable future.

Answer 1

a. ​Michael's personal assets are not recorded on the Apartment​ Exchange's balance sheet - the economic entity assumption.

b. The Apartment Exchange records furniture at its cost of​ $9,000, not its market value of​ $13,000 - the cost principle.

c. The Apartment Exchange reports its financial statements in U.S. dollars - the monetary unit assumption.

d. Michael expects the Apartment Exchange to remain in operations for the foreseeable future - the going concern assumption.