Question

An examiner’s close inspection of the annual financial statements and the accounting records revealed that Mawani Inc. may have violated some accounting principles. The examiner questioned the following transactions:
a. Merchandise purchased for resale was recorded as a debit to inventory for the invoice price of $ 80,000 (accounts payable was credited for the same amount); terms were 2/ 10, n/ 30. Ten days later, Mawani Inc. paid the account at the net amount due, $ 78,400 ($ 80,000 less the 2% discount). The $ 1,600 discount was credited to revenue. The purchased goods were still shown in inventory at $ 80,000 at year- end.
b. Mawani Inc. recorded equipment depreciation expense of $ 227,000 as a debit to retained earnings and a credit to the equipment account.
c. Routine repairs on equipment were recorded as follows: debit equipment, $ 500; credit cash, $ 500.
d. The company sustained a $ 96,000 storm damage loss during the current year. The company had no insurance. Mawani Inc. reported the loss as follows:
Statement of retained earnings— storm loss ............. $ 24,000
Statement of financial position ( assets): Deferred charge— storm loss... $ 72,000
e. Mawani’s balance sheet showed accounts receivable of $ 95,000. This amount included a $ 42,000 three- year loan to the company president. The maturity date of the loan was not specified.

Required:
1. For each transaction, identify the inappropriate treatment and the principle(s) violated, if any.
2. Give the original entry that should have been made or the appropriate reporting.



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  • CreatedFebruary 17, 2015
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