Question

You decide to start your own business as a professional corporation. You purchase an office building for $35,000 from your mother even though your real estate agent said it was worth $500,000 in the current market. The corporation recorded the building at $500,000. Which of the following concepts or principles of accounting did the corporation violate?

Going concern assumption
money unit assumption
lower of cost of market principle
cost principle

Answer 1

Cost principle

Step-by-step explanation:

Cost principle -

It refers to the amount of the specific object to be recorded during the time of acquiring , is referred to as cost principle .

Cost principle is also called historical cost principle.

During the acquisition , the amount recorded need to be correct , any alteration in the amount leads to the violation of the cost principle.

Similar situation is showcased in the question,

Hence , from the given options the correct option is cost principle.