Business transactions for Durkovitch Company from the current year follow. The company has not adopted the revaluation model of accounting for its property, plant, and equipment. The company's year end is December 31.

1. On December 20, an order for $90,000 was received from a customer for products on hand. The customer paid a $10,000 deposit when the order was placed. The order is to be shipped on January 9. The following entry was made on December 20:

Cash............................................10,000

Accounts Receivable........................80,000

Sales..........................................................90,000

2. Merchandise with a selling price of $78,000 was sold and the customers paid an additional $5,000 for extended warranties. The company did not provide any warranty service on this merchandise. The following entry was made:

Cash...........................................83,000

Sales..........................................................83,000

3. The current year had been a very successful one for the company and the company was going to report record high profits. The company recorded $60,000 in additional depreciation expense so that in future years when profits are lower, it can record less depreciation expense. The following entry was made:

Depreciation Expense......................60,000

Accumulated Depreciation................................60,000

4. On December 31, merchandise purchased for resale was received. The following entry was made:

Cost of Goods Sold........................78,000

Accounts Payable..........................................78,000

5. Land was purchased on April 30 for $230,000. The company plans to build a warehouse on the land. On December 31, the land would have cost $200,000. The following entry was made:

Loss on Fair Value Adjustment of Land........30,000

Land...........................................................30,000

Instructions

(a) In each of the situations above, identify the assumption or concept that has been violated, if any.

(b) Prepare the journal entry to correct each incorrect transaction identified in (a), if necessary.

Taking It Further

Would your answer for item 5. have been different if the Durkovitch Company was a real estate company and the land had been purchased for resale? Explain.