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Unformatted text preview: market value in this case does not represent an exchange price. The purchase should be recorded at cost, not at a market price that someone believes the equipment is worth. The correct entry is: Equipment 90,000 Cash 90,000 5. Going concern assumption. Liquidation value is not appropriate because it assumes that the company will not continue. No entry is necessary. Only when liquidation appears imminent is the going concern assumption inapplicable. 6. Matching principle. The matching principle is violated because expensing the cost of the rent does not allow a proper matching of expense with the period in which the revenue will occur. Revenue associated with the rent would benefit both years. The correct entry is: Prepaid Rent 120,000 Cash 120,000 An adjusting entry is made at December 31 to record the proper rent expense. Rent Expense ($24,000 X 3/12) 30,000 Prepaid Rent 30,000...
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This note was uploaded on 02/04/2012 for the course ACCT 2111 taught by Professor Eric during the Spring '11 term at CUHK.
- Spring '11
- Matching Principle