Presented below is information related to Cramer, Inc.
Instructions
Comment on the appropriateness of the accounting procedures followed by Cramer, Inc.
(a) Depreciation expense on the building for the year was $60,000. Because the building was increasing in value during the year, the controller decided to charge the depreciation expense to retained earnings instead of to net income. The following entry is recorded.
Retained Earnings ............................... 60,000
Accumulated Depreciation-Buildings ................................ 60,000
(b) Materials were purchased on January 1, 2014, for $120,000 and this amount was entered in the Materials account. On December 31, 2014, the materials would have cost $141,000, so the following entry is made.
Inventory ........................................... 21,000
Gain on Inventories ....................................................... 21,000
(c) During the year, the company purchased equipment through the issuance of common stock. The stock had a par value of $135,000 and a fair value of $450,000. The fair value of the equipment was not easily determinable. The company recorded this transaction as follows.
Equipment ........................................... 135,000
Common Stock ......................................................... 135,000
(d) During the year, the company sold certain equipment for $285,000, recognizing a gain of $69,000.
Because the controller believed that new equipment would be needed in the near future, she decided to defer the gain and amortize it over the life of any new equipment purchased.
(e) An order for $61,500 has been received from a customer for products on hand. This order was shipped on January 9, 2015. The company made the following entry in 2014.
Accounts Receivable .................................. 61,500
Sales Revenue ............................................................ 61,500