Lindsey Smith Decided to Start Her Own CPA Practice as a Professional

question 71

Multiple Choice

Lindsey Smith decided to start her own CPA practice as a professional corporation,Smith CPA PC.Her corporation purchased an office building for $35,000 which her real estate agent said was worth $50,000 in the current market.The corporation records the building as a $50,000 asset because Lindsey believes that is the real value of the building.Which of the following concepts or principles of accounting is being violated?

• A) Cost principle
• B) Entity concept
• C) Stable monetary unit concept
• D) Going-concern concept

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Definitions:

Line of Credit

A flexible loan from a bank or financial institution that allows a borrower to draw and use funds up to a designated limit.

Field Warehouse

A storage facility that is used to store goods that are under the control of a financing company until the loan secured by those goods is repaid.

Loan Against Inventory

A type of financing where a loan is given to a company based on the value of its inventory which serves as collateral.

Line of Credit

An arrangement between a financial institution and a client that establishes a maximum loan balance that the borrower can access.