Required:

1. For each transaction, identify the inappropriate treatment and accounting principe violated.

2. Give the original entry should have been made.

Question a) Merchandise purchased for resale was recorded as a debit to inventory for the invoice price of $80,00; terms were 2/10, n/30. Ten days later, Mawani Inc. paid the account at the net amount due, $78,400 (80,000 less the 2% discount). The $1600 discount was credited to revenue. The purchased goods were still shown in inventory at $80,000 at year end.

Question b) Mawani Inc. recorded equipment depreciation expense of $227,000 as a debit to retained earnings and credit to the equipment account.