Reference no: EM132483339

Question 1: Comfy Home owns the land and building where one of Comfy Home stores is located. As a result of the success of several local businesses, the value of the land and building has increased by 30 percent over the last several years.

Which of the following statements is correct?

Group of answer choices

1. The value of the land and buildings remain at their original purchase price. This is the historical cost principle at work.
2. The value of the land remains at its original purchase price. The value of the buildings is reassessed each year by industry professionals and recorded at the new estimate of their market value, less accumulated depreciation. This recognized the difference in appreciable value between land and buildings and shows the relevance principle at work.
3. The value of the land and buildings are reassessed each year by industry professionals and recorded at the updated market value, less accumulated depreciation on the buildings (land does not depreciate). This is the relevance principle at work.

Question 2: Randolf and Tenisa went to a business conference in Shanghai and then on to Macao for a week of vacation. The flight for two and the conference in Shanghai costs $20,000. The flight to Macao and the hotel expenses in Macao cost an additional $5,000. Randolf and Tenisa paid the full $25,000 in cash using company funds on January 1st.

Assume Randolf and Tenisa will pay the company back for the $5,000 of personal expenses. What is the net impact of this transaction to Comfy Home's accounting equation on January 1st?

Group of answer choices

1. Decrease assets by $20,000 and decrease owners' equity by $20,000.
2. Decrease assets by $25,000 and decrease owners' equity by $25,000.
3. Decrease assets by $25,000, decrease liabilities by $5,000, and decrease owners' equity by $20,000.
4. Decrease assets by $20,000, increase liabilities by $5,000, and decrease owners' equity by $25,000.