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

Question

Quizplus · Accepted Answer

The cost principle, also known as historical cost principle, states that assets should be recorded at the actual cost paid for them when they were acquired. In this case, Lorna's decision to record the building at $50,000, which is higher than the cost paid for it, violates the cost principle. The fact that her real estate agent valued the building at $50,000 does not mean that this is the actual cost of the asset, and Lorna's personal belief about the value of the building is not relevant for accounting purposes.

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