A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000. Under the conservatism principle, they should choose to show it at $100,000.

Question

Quizplus · Accepted Answer

The conservatism principle states that when there are two reasonable options for recognizing an item in financial statements, the option that results in a lower amount of assets or income should be chosen. Therefore, in this scenario, the company should choose to show the asset at $100,000, which is the lower amount.

A Company Is Uncertain Whether a Complex Transaction Should Result