Question

Required:

1. For each transaction, identify the inappropriate treatment and accounting principe violated.

2. Give the original entry should have been made.

Question 1. Routine repairs on equipment were recorded as follows: dr equipment 500, cr cash 500.

Question 2. The company sustained a 96000 storm damage loss during the current year. The company had no insurance. Mawani Inc. reported loss as follows:

St of retained earnings-storm loss 24000

st of financial position(asset): Deferred charge-storm loss 72000

Question 3. Mawani's balance sheet showed acc receeivable of $95000. This amount included a 42000 three year loan to the company president. The maturiity date of the loan was not specified.

Answer 1

1)
Inappropriate Treatment	Principle Violated		Debit	Credit
Routine expense was treated as a capital expenditure so it was debited originally.	Matching Principle	Repair Expense	$500.00
		Cash		$500.00
2)
Mawani recorded it as extraordinary losses may reduce reported taxable earnings, thereby bringing a tax savings.	No accounting principle will be applicable	No Journal entry	FRS disallow extraordinary gains and losses. US GAAP has recently adopted the same rule (effective in 2016).
3)
Loan to Employees is treated as Accounts receivables but A/R is company has a right to receive money because it had provided customers with goods and/or services, so it should not be treated loan to employees as employees are paid for the service and it is a loan that they have borrowed from company	Materiality Principle	Loans to Employees	$42,000.00
		Cash		$42,000.00