michael mcnamee is the proprietor of a property management company near the campus o 536644

Applying accounting concepts and principles

Michael McNamee is the proprietor of a property management company near the campus of Pensacola State College. The business has cash of $8,000 and furniture that cost $9,000 and has a market value of $13,000. Debts include accounts payable of $6,000. Michael”s personal home is valued at $400,000 and his personal bank account has a balance of $1,200.

Requirements

1. Consider the accounting principles discussed in the chapter and define the principle that best matches the situation:

a. Michael”s personal assets are not recorded on the property management company”s balance sheet.

b. Michael records furniture at its cost of $9,000, not its market value of $13,000.

c. Michael does not make adjustments for inflation.

d. The account payable of $6,000 is documented by a statement from the furniture company showing the business still owes $6,000 on the furniture. Michael”s friend thinks he should only owe about $5,000. The account payable is recorded at $6,000.

2. How much equity is in the business?