Chapter 1, Problem 1.5SE

Applying accounting assumptions and principles

Michael McNamee is the proprietor of a property management company, Apartment Exchange, near the campus of Pensacola 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. Consider the accounting principles and assumptions discussed in the chapter, and identify the principle or assumption that best matches the situation:

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