The Maximum Experience Company acquired a building for $500,000.Maximum Experience had an appraisal done and found that the building was worth $575,000.The seller had paid $300,000 for the building six years ago.Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?
A)Monetary unit principle
B)Going-concern principle
C)Cost principle
D)Business entity principle
E)Revenue recognition principle

Question

Quizplus · Accepted Answer

The cost principle states that assets should be recorded at their historical cost, which in this case is $500,000. The fact that the building may be worth more now or that the seller paid less for it six years ago is not relevant to the initial recording of the asset.

The Maximum Experience Company Acquired a Building for $500,000