J. Burnham owns a trucking company and normally provides receipts and paperwork
ID: 2408465 • Letter: J
Question
J. Burnham owns a trucking company and normally provides receipts and paperwork to Felder and Smith, CPAs to prepare his annual financial statements.
This year Burnham told them he had purchased a $12,000 trailer but only has receipts of $10,000. Burnham has stated to his CPA's what he "knows" the true value of the trailer to be, even though the receipt provided is closer to the purchase price of other trailers purchased in the same city/area.
Acceptance by the CPA's of the asset cost as the higher figure of $12,000 and its presentation in the financial statements as $12,000 would be...
...no problem at all.
...a violation of the matching principle.
None of the other answers
... a violation of the revenue recognition principle.
... a violation of the measurement principle (also known as the cost principle).
A....no problem at all.
B....a violation of the matching principle.
C.None of the other answers
D.... a violation of the revenue recognition principle.
E.... a violation of the measurement principle (also known as the cost principle).
Explanation / Answer
Answer : E. ... a violation of the measurement principle (also known as the cost principle).
=> The measurement principle / cost principle allows businessmen/traders to set a reasonable minimum price target of the traded stock by measuring the weights and movements of stock. So, in the case, Burnham has an average trading price in the city of $12000 per trailer, but has receipts of $10000.
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