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.

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.

  • CreatedFebruary 17, 2015
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