Question

For each of the following cases, indicate whether the accounting is correct or incorrect and also, the accounting principle or concept that applies. Correct or Incorrect Principle or Concept Gomez Company has decided to charge off as a loss the portion of its accounts 1. receivable that it estimates will be uncollectible. The accounts involved resulted from the current year's sales on March 15 of last year, Butler Inc. purchased land for $210,000, on which it planned to construct an office building. At the end of the year, the land had increased in value to 2. $260,000. Nevertheless, Butler recognized no income as a result of the increase in value. Three years ago, Nicholson Company purchased a machine for $300,000. The machine is expected to have no salvage value. Nevertheless, Nicholson continues to 3. keep the asset's cost in its accounting records and to depreciate the asset over its nine-year useful life.

Answer 1

No.	Correct or Incorrect	Concept
1	Correct	Prudence concept- As per this concept, anticipate all possible future losses but not future gains, E.g. Allowance for bad debts
2	correct	Cost Concept-As per this concept, the assets should be recorded at the cash amount paid to acquired to that assets.
3	Incorrect	Prudence concept- If the asset is no longer useful then assets should not be recorded in financial statement. It should be written off as once