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Presented below are a number of business transactions that occurred during the current year for Gonzales, Inc.

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Question;E2-7(Accounting Principles?Comprehensive) Presented below are a number of business transactions that occurred during the current year for Gonzales, Inc.InstructionsIn each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.The president of Gonzales, Inc. used his expense account to purchase a new Suburban solely for personal use. The following journal entry was made.Miscellaneous Expense 29,000Cash 29,000Merchandise inventory that cost $620,000 is reported on the balance sheet at $690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value.Merchandise Inventory 70,000Revenue 70,000The company is being sued for $500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry.Loss from Lawsuit 500,000Liability for Lawsuit 500,000Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a $16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made.Depreciation Expense 16,000Accumulated Depreciation 16,000Gonzales, Inc. has been concerned about whether intangible assets could generate cash in case of liquidation. As a consequence, goodwill arising from a purchase transaction during the current year and recorded at $800,000 was written off as follows.Retained Earnings 800,000Goodwill 800,000Because of a ?fire sale,?equipment obviously worth $200,000 was acquired at a cost of $155,000. The following entry was made.Equipment 200,000Cash 155,000Revenue 45,000

 

Paper#44999 | Written in 18-Jul-2015

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