Question 310 marks

An inexperienced bookkeeper at Aster Inc. made the following entries. In each case, the explanation to the entry is correct.

3.1)Cash 25,000

Sales revenue25,000

To record a gift of cash from the local government to encourage business by reducing the cost of land necessary to set up a factory

3.2)Interest expense7,600

Cash7,600

To record the interest paid during the factory construction during the year.

3.3)Goodwill2,000

Inventory2,000

To encourage customer goodwill, the company offered a free sample of products to new customers

3.4)Land100,000

Buildings700,000

Cash800,000

Acquired land and a building from a bankrupt company, Daisy Company for a lumpsum price of $800,000.At the time, Daisy had the following book and appraisal value for these assets:

Book valueAppraisal value

Land$100,000$300,000

Building$1,000,000700,000

$1,100,0001,000,000

So the lower of the two values were recorded in the entry above.

Aster expects the building to last another 25 years; however, it expects to replace the roof in 5 years.Given the unique design and materials of this roof, it is assessed to be worth 20% of the value of the building purchase.

Instructions:

Prepare the entries that should have been made.Use the number, rather than date to identify your entries.