Subject 2 (30%) A. ABC controlled the following equipment as at December 31, 2016: 1. Equipment 1, acquired January 1, 2014, cost 24,000. 2. Equipment 2, acquired July 1, 2014, cost C48,000. 3. Equipment 3, acquired January 1, 2015, cost 30,000, 4. Equipment 4, acquired July 1, 2016, cost 36,000. Transactions relating to equipment took place between January 1, 2017 and December 31, 2019. Those transactions were recorded in ABC's ledger as follows: 1. July 1, 2017. Equipment 2 was traded for a technologically advanced equipment (Equipment 5) that would have considerably decreased the production cost of ABC. The purchase price of the Equipment 5 was agreed to 36,000. ABC paid to the supplier of equipment 24,000 cash on the transaction. In order to record that transaction ABC made only the following journal entry: Debit: Equipment, 24,000, Credit: Cash 24,000. 2. January 1, 2018. Equipment 1 was sold 6,000 cash. The sale of Equipment 1 was recorded as follows: Debit: Cash, 6,000, Debit: Loss on Sale, 18,000. Credit: Equipment, 24,000. 3. July 1, 2019. Equipment 6 was acquired for 42,000 cash. The acquisition of Equipment was recorded as follows: Debit: Equipment, 42,000. Credit: Cash, 42,000. 4. October 1, 2019. Equipment 4 was damaged and sold as junk for 800. ABC recorded the transaction as follows: Debit: Cash, 800, Debit: Loss on equipment retirement, 35.200. Credit: Equipment: 36,000. those transactions were The audit of ABC's financial statements revealed that most erroneously recorded. a Required: A. For cach of the 3 years (2017-2019) determine the correct book value of the equipment and determine whether the reported income was overstated or understated due to the erroneous recording of the above events. (20%) Additional information: The useful life of all equipment items is six (6) years. The salvage value is zero and ABC adopts the straight-line depreciation method. Depreciation commences the acquisition date. b. Ignore income tax consideration. c. ABC's accounting period starts on January 1 and ends on 31 December of each year B. Matching principle is one of the fundamental accounting principles. Explain which depreciation method provides a better matching of revenues with costs. (word limit: 300 words) (5%) C. In order to determine income, accounting uses accruals and deferrals. Define income under accrual accounting basis. Provide an example of an accrued and a deferred (prepaid) item. (word limit: 300 words) (5%)