Question 1:

Carleton Builders Ltd. recorded the following summarized transactions during the current year:

a. The company originally sold and issued 108,000 common shares. During the current year 10,000 shares were repurchased from the shareholders and retired. Near the end of the current year, the board of directors declared and paid a cash dividend of $9 per share. The dividend was recorded as follows:

General Journal Debit Credit

Retained earnings 972,000

Cash ($9 98,000) 882,000

Dividend income ($9 10,000) 90,000

b. Carleton Builders Ltd. purchased a machine that had a list price of $98,000. The company paid for the machine in full by issuing 10,000 common shares (market price = $8.90). The purchase was recorded as follows:

General Journal Debit Credit

Machine 98,000

Share capital ($8.90 10,000) 89,000

Gain on purchase of equipment 9,000

c. Carleton needed a small structure for temporary storage. A contractor quoted a price of $777,000. The company decided to build the structure itself. The cost was $546,000, and construction required three months. The following entry was made:

General Journal Debit Credit

Buildingswarehouse 777,000

Cash 546,000

Revenue from self-construction 231,000

d. Carleton owns a plant located on a river that floods occasionally. A severe flood occurred during the current year, causing an uninsured loss of $95,000 (measured as the amount spent to repair the flood damage). The following entry was made:

General Journal Debit Credit

Retained earnings, flood loss 95,000

Cash 95,000

e. On 28 December, the company collected $73,000 cash in advance for merchandise to be shipped in January. The company's fiscal year-end is 31 December. This transaction was recorded on 28 December as follows:

General Journal Debit Credit

Cash 73,000

Sales revenue 73,000

Required:

For each transaction, select which accounting principle was violated.