Presented below are a number of business transactions that occurred during the current year for Chavez, Inc. LO2 1. Because the general level of prices increased during the current year, Chavez, Inc. determined that there was a $10,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made.

1. Because the general level of prices increased during the current year, Chavez, Inc. determined that there was a $10,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made.

Depreciation Expense 10,000 Accumulated Depreciation 10,000 2. Because of a “flood sale,” equipment obviously worth $250,000 was acquired at a cost of $150,000. The following entry was made.

Equipment 250,000 Cash 150,000 Gain on Purchase of Equipment 100,000 3. The president of Chavez, Inc. used his expense account to purchase a new Saab 9000 solely for personal use. The following entry was made.

Miscellaneous Expense 34,000 Cash 34,000 4. An order for $30,000 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.

Accounts Receivable 30,000 Sales 30,000 5. Materials were purchased on March 31 for $65,000. This amount was entered in the Inventory account. On December 31, the materials would have cost $85,000, so the following entry was made.

Inventory 20,000 Gain on Inventories 20,000 Instructions In each situation, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.