Stuart Allen Company Manufactures Computer Hardware

question 72

Multiple Choice

Stuart Allen Company manufactures computer hardware.The president of the company bought a new car as a gift for his daughter and paid for it using cash from the business.Since the company paid for the car,it was recorded in its books as an asset.Which of the following concepts or principles of accounting did the company violate?

• A) monetary unit assumption
• B) economic entity assumption
• C) cost principle
• D) going concern assumption

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Definitions:

Financial Risk

The hazard of suffering financial loss through an investment or business endeavor.

Business Risk

encompasses the potential for a firm's operational or financial performance to suffer due to internal or external factors, impacting profitability and viability.

Absolute Priority Rule

A principle in bankruptcy proceedings that senior creditors are paid before junior creditors and equity holders.

Bankruptcy Proceeding

A legal process involving a person or business that is unable to repay outstanding debts, seeking relief through the court's protection.