The following situations involve accounting principles and assumptions.
1. Rex Company owns buildings that are worth substantially more than they originally cost. In an effort to provide more relevant information, Rex reports the buildings at fair value in its accounting reports.
2. Levi Company includes in its accounting records only transaction data that can be expressed in terms of money.
3. Josh Borke, owner of Josh’s Photography, records his personal living costs as expenses of the business.
Instructions
For each of the three situations, say if the accounting method used is correct or incorrect. If correct, identify which principle or assumption supports the method used. If incorrect, identify which principle or assumption has been violated.