Question

Required:
For each transaction, select which accounting principle was violated.

Question 1:

Carleton Builders Ltd. recorded the following summarized transactions during the current year:

a. The company originally sold and issued 108,000 common shares. During the current year 10,000 shares were repurchased from the shareholders and retired. Near the end of the current year, the board of directors declared and paid a cash dividend of $9 per share. The dividend was recorded as follows:

General Journal	Debit		Credit
Retained earnings	972,000
Cash ($9 × 98,000)			882,000
Dividend income ($9 × 10,000)			90,000

b. Carleton Builders Ltd. purchased a machine that had a list price of $98,000. The company paid for the machine in full by issuing 10,000 common shares (market price = $8.90). The purchase was recorded as follows:

General Journal	Debit		Credit
Machine	98,000
Share capital ($8.90 × 10,000)			89,000
Gain on purchase of equipment			9,000

c. Carleton needed a small structure for temporary storage. A contractor quoted a price of $777,000. The company decided to build the structure itself. The cost was $546,000, and construction required three months. The following entry was made:

General Journal	Debit		Credit
Buildings—warehouse	777,000
Cash			546,000
Revenue from self-construction			231,000

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 $95,000 (measured as the amount spent to repair the flood damage). The following entry was made:

General Journal	Debit		Credit
Retained earnings, flood loss	95,000
Cash			95,000

e. On 28 December, the company collected $73,000 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:

General Journal	Debit		Credit
Cash	73,000
Sales revenue			73,000

Answer 1