When a new company was formed,one partner contributed some used equipment he owned.The equipment was appraised at $44,000 and $50,000 by two different dealers.The accountant entered the equipment at $44,000 in the financial records of the partnership.This is an example of
A) the materiality constraint.
B) the conservatism constraint.
C) the matching principle.
D) industry practice constraint.

Question

Quizplus · Accepted Answer

The accountant entered the equipment at a lower value than its appraised value, which is an example of conservatism constraint. This constraint states that when there are uncertainties in accounting, accountants should choose a method that will result in less net income or assets, to avoid overstating financial performance.

When a New Company Was Formed,one Partner Contributed Some Used