Question

Bob Bertolucci, owner of Bob's Bazaar, also owns a personal residence that costs 575,000. The market value of his residence is725,000. During preparation of the financial statements for Bob's Bazaar, the accounting principle most relevant to the presentation of Bob's home is:

1) Materiality
2) Conservatism
3) Cost principle
4) Matching principle

Answer 1

The cost principle is the most relevant accounting principle for presenting Bob Bertolucci's personal residence in the financial statements for Bob's Bazaar, recording it at the original purchase cost of $575,000. Hence, the correct answer is option 3.

Step-by-step explanation:

When considering the presentation of Bob Bertolucci's personal residence on the financial statements for Bob's Bazaar, the most relevant accounting principle would be the cost principle. The cost principle dictates that assets should be recorded and presented in the financial statements at their original purchase cost.

In this case, even though the market value of Bob's residence is $725,000, the residence cost him $575,000, and it is this amount that should appear on the financial statements if the asset were to be included. However, it is important to note that typically, a personal residence would not be included in the financial statements of a business unless it is used in some way for business purposes.