Gregory Charles owns two different businesses – a roof repair firm and a painting company. During the current year, the roofing business made a net income of $75,000 while the painting company lost $50,000. In order to show himself in a less profitable way, Gregory combined the two businesses under a single name – Roof n Paint Company. He then reported to all interested parties a $25,000 net income for the year. Each company has a uniquely issued IRS Employer Identification Number. Write a statement indicating which accounting principle Gregory is violating. Explain why his method of reporting violates this principle. Paradigm Publishing, Inc. 5th Edition College Accounting, Robert L Dansby, Burton S Kaliski, Michael D Lawrence. Solution It means a legal entity, typically a business, that is defined as detached from another business or individual with respect to accountability. A separate legal entity may be set up in the case of a corporation or a limited liability company, to separate the actions of the entity from those of the individual or other company. The method of combining the two business is not justified. It leads to misrepresentation of company accounts.Since each company has a uniquely issued IRS Employer Identification Number, then separte income tax return should have been filed.Separate legal entity princilpal is voilated here It means a legal entity, typically a business, that is defined as detached from another business or individual with respect to accountability. A separate legal entity may be set up in the case of a corporation or a limited liability company, to separate the actions of the entity from those of the individual or other company. The method of combining the two business is not justified. It leads to misrepresentation of company accounts..

1. Gregory Charles owns two different businesses – a roof repair firm and a painting company.
During the current year, the roofing business made a net income of $75,000 while the painting
company lost $50,000. In order to show himself in a less profitable way, Gregory combined the
two businesses under a single name – Roof n Paint Company. He then reported to all interested
parties a $25,000 net income for the year. Each company has a uniquely issued IRS Employer
Identification Number.
Write a statement indicating which accounting principle Gregory is violating. Explain why his
method of reporting violates this principle.
Paradigm Publishing, Inc. 5th Edition College Accounting, Robert L Dansby, Burton S Kaliski,
Michael D Lawrence.
Solution
It means a legal entity, typically a business, that is defined as detached from another business or
individual with respect to accountability. A separate legal entity may be set up in the case of a
corporation or a limited liability company, to separate the actions of the entity from those of the
individual or other company.
The method of combining the two business is not justified. It leads to misrepresentation of
company accounts.Since each company has a uniquely issued IRS Employer Identification
Number, then separte income tax return should have been filed.Separate legal entity princilpal
is voilated here
It means a legal entity, typically a business, that is defined as detached from another business or
individual with respect to accountability. A separate legal entity may be set up in the case of a
corporation or a limited liability company, to separate the actions of the entity from those of the
individual or other company.
The method of combining the two business is not justified. It leads to misrepresentation of
company accounts.