Exercise 2-09 (Essay) Presented below are number of business transactions that occurred during the current year for Gonzales, Inc. In each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles. (a) The president of Gonzales, Inc. used his expense account to purchase a new Tahoe solely for personal use. The following journal entry was made. Miscellaneous Expense 29,000 Cash 29,000 (b) Merchandise inventory that cost $620,000 is reported on the balance sheet at $690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value. Inventory Sales Revenue 70,000 70,000 (c) The company is being sued for $500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry. 500,000 Loss from Lawsuit Liability for Lawsuit 500,000 (d) Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a $16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made. 16,000 Depreciation Expense Accumulated Depreciation Equipment 16,000 (e) Because of a "fire sale," equipment obviously worth $200,000 was acquired at a cost of $155,000. The following entry was made. 200,000 Equipment Cash Sales Revenue 155,000 45,000 LINK TO TEXT Question Attempts: Unlimited SAVE FOR LATER SUBMIT ANSWER Exercise 2-09 (Essay) Presented below are number of business transactions that occurred during the current year for Gonzales, Inc. In each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles. (a) The president of Gonzales, Inc. used his expense account to purchase a new Tahoe solely for personal use. The following journal entry was made. Miscellaneous Expense 29,000 Cash 29,000 (b) Merchandise inventory that cost $620,000 is reported on the balance sheet at $690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value. Inventory Sales Revenue 70,000 70,000 (c) The company is being sued for $500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry. 500,000 Loss from Lawsuit Liability for Lawsuit 500,000 (d) Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a $16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made. 16,000 Depreciation Expense Accumulated Depreciation Equipment 16,000 (e) Because of a "fire sale," equipment obviously worth $200,000 was acquired at a cost of $155,000. The following entry was made. 200,000 Equipment Cash Sales Revenue 155,000 45,000 LINK TO TEXT Question Attempts: Unlimited