James Company, a proprietorship, had the following selected business transactions during the year:

1. Land with a cost of $415,000 was recorded at its fair value of $465,000.

2. A lease agreement to rent equipment from an equipment supplier starting next year was signed. The rent is $500 per month and the lease is for two years. Payments are due at the start of each month. Nothing was recorded in James Company’s accounting records when the lease was signed. 

3. James paid the rent for an apartment for the owner’s personal use and charged it to Rent Expense.

4. James prepaid for a one-year insurance policy for $1,200. The amount was charged to Insurance Expense.

5. James included a note in its financial statements stating the company is a going concern.

6. James included a note in its fi nancial statements stating the company is following ASPE.

Instructions

a. In each situation, identify whether the accounting treatment is correct or not, and why.

b. If it is incorrect, state what should have been done.