E2-7 - E2-7 (Accounting PrinciplesComprehensive) Presented...

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E2-7 (Accounting Principles—Comprehensive) Presented below are a number of business transactions that occurred during the current year for Fresh Horses, Inc. (a) The president of Fresh Horses, Inc. used his expense account to purchase a new Suburban solely for personal use. The following journal entry was made. Miscellaneous Expense 29,000 Cash 29,000 The purchase of a personal asset is a loan to a shareholder and not a business expense at all. If not a loan, it is a distribution from the company. Matching principle says no expense (b) Merchandise inventory that cost $620,000 is reported on the balance sheet at $690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value. Merchandise Inventory 70,000 Revenue 70,000 Don’t make the entry at all. Inventory is recorded at historical cost. (c) The company is being sued for $500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no
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This note was uploaded on 09/20/2008 for the course ACC 349 taught by Professor Christie during the Spring '08 term at University of Phoenix.

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E2-7 - E2-7 (Accounting PrinciplesComprehensive) Presented...

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