While examining the accounting records of Troubled Company, you discover two entries during 1990 that appear questionable. The first entry recorded the cash proceeds from an insurance settlement as follows:

Your investigation shows that this entry was intended to record the receipt of an insurance company's \(\$ 51,000\) check to settle a claim resulting from the destruction of a machine in a small plant fire on November 4, 1990. The machine originally cost \(\$ 108,000\) and was put in operation on January 7, 1986. It was depreciated on a straight-line basis for four years under the assumption it would have an eightyear life and no salvage value. During the first week of January 1990, the machine had been overhauled at a cost of \(\$ 18,000\). The overhaul did not increase the machine's capacity or its salvage value. However, it was expected that the overhaul would lengthen the machine's service life two years beyond the eight originally expected.
The second entry that appears questionable was intended to record the receipt of a check from selling a portion of a tract of land. The tract was adjacent to the company's plant and had been purchased the year before. It cost \(\$ 120,000\), and \(\$ 11,250\) was paid for clearing and grading it. Both amounts had been debited to the Factory Land account. The land was to be used for storing finished product; but after the grading was completed, it was obvious the company did not need the entire tract. Troubled Company had received an offer from a purchaser who was willing to pay \(\$ 67,500\) for the east half or \(\$ 90,000\) for the west half. The company decided to sell the west half, and it recorded receipt of the purchaser's check with the following entry:

Were any errors made in recording these transactions? If so, describe the errors and in each case give an entry or entries that will correct the account balances under the assumption the 1990 revenue and expense accounts have not been closed.

Transcribed Image Text:

Nov. 14 Cash Loss from Fire 51,000.00 21,000.00 Accumulated Depreciation, Machinery Machinery 54,000.00 126,000.00 Received payment of fire loss claim.