Instructions comment on the appropriateness of the accounting procedures followed by Garth Brooks 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 change the depreciation expense to retained earnings instead of to net income. The following entry is recorded.
Retained Earnings .60,000
Accumulated depreciation building 60,000
b- Materials purchase in January 1, 2006 for 120,000 and this amount was entered in the Materials account On December 31, 2006 the materials would have cost $141,000, so the following entry is made.
Gain 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 market value of $450,000. The fair market value of the equipment was not easily determinable. The company recorded this transaction as follows.
Common Stock .135,000
d- During the year, the company sold certain equipment for $285,000, recognized a gain for of $69,000, because the controller believe that new equipment would be needed in the near future, she decide 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, 2007. The company made the following entry in 2006.
Accounts Receivable .61,500
6-On July1, 2007, Blair company pays $18,000 to Hindi Insurance Co. for a 3 year insurance contract. Both companies have fiscal years ending December 31. For Blair Co. journalize the entry on July 1 and the adjusting entry on December 31.
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