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 6 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 requires that assets should be recorded at their historical cost, which is the amount paid to acquire or produce them. In this case, Maximum Experience acquired the building for $500,000, which is the historical cost of the asset. Even though the building may have increased in value since it was purchased, the cost principle dictates that it should be recorded at its original cost.

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