E2-10B (Accounting Principles—Comprehensive) Presented below is information related to Bowman, Inc

E2-10B (Accounting Principles—Comprehensive) Presented below is information related to Bowman, Inc.

Instructions

Comment on the appropriateness of the accounting procedures followed by Bowman, Inc.

(a) During the year, the company purchased equipment through the issuance of common stock. The

stock had a par value of $135,000 and a fair market value of $450,000. The fair market value of the

equipment was not easily determinable. The company recorded this transaction as follows.

Equipment 135,000

Common Stock 135,000

(b) During the year, the company sold certain equipment for $285,000, recognizing a gain of $69,000.

Because the controller believed that new equipment would be needed in the near future, she decided

to defer the gain and amortize it over the life of any new equipment purchased.

(c) An order for $61,500 has been received from a customer for products on hand. This order was

shipped on January 9, 2015. The company made the following entry in 2014.

Accounts Receivable 61,500

Sales 61,500

(d) Materials were purchased on January 1, 2014, for $120,000 and this amount was entered in the

Materials account. On December 31, 2014, the materials would have cost $141,000, so the following

entry is made.

Inventory 21,000

Gain on Inventories 21,000

(e) Depreciation expense on the company’s building for the year was $60,000. Because the building

was increasing in value during the year, the controller decided to charge the depreciation expense

to retained earnings instead of to net income. The following entry is recorded.

Retained Earnings 60,000

Accumulated Depreciation—Buildings 60,000
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