Question: Presented below are a number of business transactions that occurred during the current year for Delgado, Inc.
1. Because the general level of prices increased during the current year, Delgado, Inc. determined that there was a $40,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made.
2. Because of a "flood sale," equipment obviously worth $300,000 was acquired at a cost of $240,000. The following entry was made.
3. An order for $60,000 has been received from a customer for products on hand. This order is to be shipped on January 9 next year. The following entry was made.
4. Land was purchased on April 30 for $200,000. This amount was entered in the Land account.
On December 31, the land would have cost $230,000, so the following entry was made.
Depreciation Expense 40,000
Accumulated Depreciation 40,000
Equipment 300,000
Cash 240,000
Gain on Purchase of Equipment 60,000
Accounts Receivable 60,000
Sales 60,000
Land 30,000
Gain on Land 30,000
Miscellaneous Expense 54,000
Cash 54,000
Instructions:
In each situation, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.