Question

Jackie's Crafts is a successful retailer of fabric by the yard and other sewing supplies. If Jackie were to shut down the store, the bolts of fabrics and the bins of lace and trim, inventory valued at $20,000, on average, at any point in time, would have to be sold for about 10% of that value. But, Jackie's accountant does not feel the need to reduce the value of the inventory on the books. This is a reflection of the _______ concept. A. Going Concern B. Matching C. Consistency D. Conservatism

Answer 1

Jackie's accountant's decision to keep the inventory valued at $20,000 reflects the Going Concern concept. Option a is correct.

Step-by-step explanation:

The reflection of Jackie's accountant not reducing the value of inventory on the books, despite the fact that it would be sold for merely 10% of its value if the store were to shut down, can be attributed to the Going Concern concept.

According to this principle, it is assumed that the business will continue its operations indefinitely and that it does not intend to, nor is it expected to, go out of business or to liquidate its assets.

This is why the accountant maintains the inventory value at $20,000 on the balance sheet rather than reducing it to the liquidation value of $2,000, despite potential discrepancies between book values and market values.

Option a is correct.