You are the Finance Manager of Keiso Inc., a furniture manufacturer. Your staff member has prepared draft financial statements as at/for the year ended December 31, 2018. (ie all entries are done except for any corrections you propose.)

On review of the statements you note the following relating to events occurring in 2018:

A. Keiso was served with a lawsuit during 2018 for faulty product. The claim is $100,000 and Keisos lawyer estimates that it is highly likely they will have to pay $35,000 for this claim. Keiso did not record any amount in the financial statements related to the lawsuit as it will not go to court until September 2019.

B. Keiso signed a one-year lease in December 2018 for rental of a facility starting January 1, 2019. Upon signing the lease, Keiso paid the January 2019 rent of $9,000 and a damage deposit of $5,000, both of which the accountant recorded as rent expense in 2018.

C. During Bankrupt Ltd.s liquidation sales, Keiso purchased furniture inventory, valued at $30,000, for $20,000. The accountant recorded the inventory at $30,000 and recorded the $10,000 difference between the amount paid and the value as a gain.

D. Keiso paid $60,000 for a truck on Jan 1, 2018. The truck is being depreciated straight line over 6 years. You determine that the truck has been used throughout the year (and will continue to be used) 100% for personal use by the majority shareholder of the company.

E. Keiso also performs furniture cleaning. A customer, Picky, purchased furniture and paid for a non-refundable cleaning of $1,000 that can be redeemed anytime in three years. Picky hadnt yet booked the service at year end. Keiso recorded the revenue as the sale was non-refundable.

Required (State any assumptions needed): For each letter item above, prepare the following:

i) Prepare any necessary journal entries for 2018 for Keiso to correct any of the above treatments. If no adjustment is necessary, you must indicate No Entry. (Always show any calculations.)

ii) EXPLAIN why you made the adjustment (or no adjustment) in (i) using and applying at least one foundational principle or element characteristic from the conceptual framework as support.