the CEO engaged a CPA firm to examine the company's financial records. The CPA firm discovered the following facts during the course of the engagement, which was completed prior to any adjusting or closing entries beling propared for

20\\\\times 2

.\ A new digital imaging system was acquired on January

5,20\\\\times 1

, at a cost of

$5,000

. Although this asset was expected to be in use for the next four years, the purchase was inadvertently charged to office expense. Per the company's accounting manual, office equipment of this type should be depreclated using the stralght-Ilne method with no salvage value assumed.\ A used truck, purchased on November

18,20\\\\times 2

, was recorded with this entry:\ To record truck expenditure:\ Vehicle Expense Cash\

$18,000

\

$18,000

\ Management plans to use this truck for three years and then trade it in on a new one. Salvage is estimated at

$3,000

. Watsontown has always used straight-line depreciation for fixed assets, recording a half year of depreciation in the year the asset is acquired.\ On July

1,20\\\\times 2

, the company rented a warehouse for three years. The lease agreement specified that each year's rent be paid in advance, so a check for the first year's rent of

$18,000

was issued and recorded as an addition to the Buildings account.\ Late in

20\\\\times 1

, Watsontown collected

$23,500

from a customer in full payment of his account. The cash receipt was credited to revenue. In 20X2, Watsontown's bookkeeper was reviewing outstanding receivables and noticed the outstanding balance. Knowing the customer in question had recently died, she wrote off the account. Eecause Watsontown seldom has bad debts, the company uses the direct write-off method whereby it charges Bad debts expense and credits Accounts receivable when an account is deemed uncollectible.\ A three-year property and casualty insurance policy was purchased in January

20\\\\times 1

for

$30,000

. The entire amount was recorded as an insurance expense at the time.\ On October 1,20X1, Watsontown borrowed

$100,000

from a local bank. The loan terms specified annual interest payments of

$8,000

on the anniversary date of the loan. The first interest payment was made on October

1,20\\\\times 2

, and expensed in its entirety.

the CEO engaged a CPA firm to examine the company's financial records. The CPA firm discovered the following facts during the course of the engagement, which was completed prior to any adjusting or closing entries being prepared for 202. 1. A new digital imaging system was acquired on January 5,201, at a cost of $5,000. Although this asset was expected to be in use for the next four years, the purchase was inadvertently charged to office expense. Per the company's accounting manual, office equipment of this type should be depreciated using the straight-line method with no salvage value assumed. 2. A used truck, purchased on November 18,202, was recorded with this entry: To record truck expenditure: Management plans to use this truck for three years and then trade it in on a new one. Salvage is estimated at $3,000. Watsontown has always used straight-line depreciation for fixed assets, recording a half year of depreciation in the year the asset is acquired. 3. On July 1,202, the company rented a warehouse for three years. The lease agreement specified that each year's rent be paid in advance, so a check for the first year's rent of $18,000 was issued and recorded as an addition to the Buildings account. 4. Late in 201, Watsontown collected $23,500 from a customer in full payment of his account. The cash recelpt was credited to revenue. In 20X2, Watsontown's bookkeeper was reviewing outstanding receivables and noticed the outstanding balance. Knowing the customer in question had recently died, she wrote off the account. Elecause Watsontown seldom has bad debts, the company uses the direct write-off method whereby it charges Bad debts expense and credits Accounts receivable when an account is deemed uncollectible. 5. A three-year property and casualty insurance policy was purchased in January 201 for $30,000. The entire amount was recorded as an insurance expense at the time. 6. On October 1, 20X1, Watsontown borrowed $100,000 from a local bank. The loan terms specified annual interest payments of $8,000 on the anniversary date of the loan. The first interest payment was made on October 1,202, and expensed in its entirety