Reference no: EM132483385

Question 1: Randolf learned from his financial advisor that a company just like Comfy Home sold for $1,000,000. The company is located in an adjacent city. Randolf believes Comfy Home should have a market value of at least $1,000,000. Randolf would like to ask his accountant to update Comfy Home's owners' equity balance to better reflect the current market value of the business.

Which of the following statements regarding relevant accounting principles is correct in regards to this situation? Select all that apply.

Group of answer choices

Option 1: The consistency principle is involved. Comfy Home's value needs to be consistently measured against those in the industry.

Option 2: The materiality principle is involved. Because the sales price of the comparable company was material, Comfy Home should use this information to revalue its equity.

Option 3: The relevance principle is involved. Comfy Home's accounts should be relevant to those individuals who seek to understand the financial welfare of the firm. As such, Randolf and Tenisa's equity in Comfy Home should be revalued to be the most relevant to investors.

Option 4: The historical cost principle applies here. Under US GAAP, Tenisa and Randolf's investment should be recorded at the time of the original transaction. As such, Randolf and Tenisa's equity in Comfy Home should NOT be revalued to reflect current market values.