Question

Carleton Builders Ltd. recorded the following summarized transactions during the current year:
a. The company originally sold and issued 100,000 common shares. During the current year, 94,000 of these shares were outstanding and 6,000 were repurchased from the share-holders and retired. Near the end of the current year, the Board of Directors declared and paid a cash dividend of $ 8 per share. The dividend was recorded as follows:
Retained earnings........ 800,000
Cash ($ 8 × 94,000) ................ 752,000
Dividend income ($ 8 × 6,000) ........... 48,000
b. Carleton Builders Ltd. purchased a machine that had a list price of $ 90,000. The company paid for the machine in full by issuing 10,000 common shares ( market price = $ 8.50). The purchase was recorded as follows:
Machine................ 90,000
Share capital ($ 8.50 × 10,000) ........... 85,000
Gain on purchase of equipment ........... 5,000
c. Carleton needed a small structure for temporary storage. A contractor quoted a price of $ 769,000. The company decided to build the structure itself. The cost was $ 542,000, and construction required three months. The following entry was made:
Buildings— warehouse........... 769,000
Cash........................ 542,000
Revenue from self- construction ........... 227,000
d. Carleton owns a plant located on a river that floods occasionally. A severe flood occurred during the current year, causing an uninsured loss of $ 97,000 ( measured as the amount spent to repair the flood damage). The following entry was made:
Retained earnings, flood loss ........... 97,000
Cash .......................... 97,000
e. On 28 December, the company collected $ 76,000 cash in advance for merchandise to be shipped in January. The company’s fiscal year- end is 31 December. This transaction was recorded on 28 December as follows:
Cash........... 76,000
Sales revenue.................. 76,000

Required:
1. For each transaction, determine which accounting principle (if any) was violated.
2. Explain the nature of the violation.
3. In each instance, indicate how the transaction should have been originally recorded.



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  • CreatedFebruary 17, 2015
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