(Learning Objective 2: Applying accounting assumptions) Daniel Newman is chairman of the board of Quality Food Brands, Inc. Suppose Mr. Newman has just founded Quality Food Brands, and assume that he treats his home and other personal assets as part of Quality Food Brands. Answer these questions about the evaluation of Quality Food Brands, Inc.

1.

Which accounting principle governs this situation?

2.

How can the proper application of this accounting concept give Newman and others a realistic view of Quality Food Brands, Inc.? Explain in detail.