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Briefly state why the foundational principle is violated

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Question - For each independent situation, A & B, state the foundational principle which is violated. Briefly state why the foundational principle is violated and write the correct journal entry if one is needed. State the impact on net income of the incorrect entries to the financial records.

A. Your business currently (December 2021) owns a machine (cost $8,000), which declined in value significantly last year in 2020, due to low demand and over-use. The carrying value of the machine is currently $7,000 but the market value is estimated to be $1,500. On December 31, 2021 you record a 'Loss on Sale' of $6,500 and credit to 'Machine' of $6,500, as you expect to sell the machine in 2022 for $1,500.

B. Your business purchased a building for $100,000 a few years ago in the city. The building is depreciated over ten years estimated life, or 10% per year. Because of a booming real estate market, the value of your building has tripled to $300,000 in the past two years. You decide to record depreciation expense of $30,000 per year going forward.

Reference no: EM132973857

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