Presented below are a number of business transactions that occurred during the current year for Hialeah, Inc.

1. Because the general level of prices increased during the current year, Hialeah, Inc. determined that there was a \(\$ 20,000\) understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made:

2. Materials were purchased on March 31 for \(\$ 65,000\) and this amount was entered in the Materials account. On December 31, the materials would have cost \(\$ 85,000\), so the following entry was made:

3. An order for \(\$ 30,000\) has been received from a customer for products on hand. This order is to be shipped on January 9 next year. The following entry was made:

4. The president of Hialeah, Inc. used his expense account to purchase a new Saab 9000 solely for personal use. The following entry was made:

5. Because of a "flood sale," equipment obviously worth \(\$ 230,000\) was acquired at a cost of \(\$ 150,000\). The following entry was made:

\section*{Instructions}
In each of the situations above, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.

Transcribed Image Text:

Depreciation Expense Accumulated Depreciation 20,000 20,000