$1.$ You have been assigned to examine the financial statements of Santos, Inc. for the year ended

December $31,2023.$ You discover the following situations in February $2024.$

$1.$ Santos, Inc. has not accrued salaries payable at the end of each of the last $3$ years, as follows.

Salaries are expensed when paid.

December $2021$ $$4,200$

December $2022$ $$0$

December $2023$ $$8,600$

$2.$ The physical inventory count has been incorrectly counted resulting in the following errors.

December $2021$ Overstated $$6,500$

December $2022$ Understated $$5,800$

December $2023$ Overstated $$7,200$

$3.$ Santos, Inc. purchased $$3,700$ of supplies on May $2,2023,$ recording a debit to Supplies Expense

and credit to Cash. The Supplies account had a balance of $$2,400$ on January $1,2023.$ A count

revealed there were $$800$ on hand on December $31,2023.$ No entries have been made to Supplies

all year.

$4.$ In $2023,$ the company sold equipment for $$7,200$ that had a book value of $$5,800$ and originally

cost $$90,000.$ The company credited the proceeds from the sale to the Equipment account. The

company made the following entry:

Cash $7,200$

Gain on Sale of Equipment $7,200$

$5.$ At December $31,2023$ Santos, Inc. decided to change the depreciation method on its machinery

from double$-$declining$-$balance to straight$-$line. The Machinery had an original cost of $$100,000$

when purchased on July $1,2021.$ It has a $10-$year useful life and no salvage value. Depreciation

expense recorded prior to $2023$ under the double$-$declining$-$balance method was $$28,000.$ Jordan,

Inc. has already recorded $2023$ depreciation expense of $$14,400$ using the double$-$declining

balance.

$6.$ During November $2021,$ a competitor company filed a patent$-$infringement suit against Santos, Inc.

claiming damages of $$140,000.$ In December $2022$ the company$$s legal counsel has indicated that

an unfavorable verdict is probable and a reasonable estimate of the court$$s award to the

competitor is $$95,000.$ No Entry has been recorded on the books.

$7.$ The December utilities bills have been expensed in January, the following month, when paid.

Utilities payable on December $31$ of each year were as follows.

$2021$ $$0$

$2022760$

$2023900$

$8.$ Santos, Inc. has not recorded any depreciation for a machine they purchased on October $1,2021.$

They paid $$168,000$ for the machine which has a useful life of $6$ years.

$9.$ The company has estimated warranty expense to be $2\%$ in the past and made an entry for

$$120,000$ in $2023.$ However, the company decided that it should be $2\mathrm{.}1\%$ this year which amounts

to $$126,000.$

$10.$ A $$36,000$ insurance premium paid on June $1,2022,$ for a policy that expires on May $31,2024,$ was

charged to insurance expense in $2022.$

Reported Net Income is:

$2021$ $$540,000$

$2022$ $$580,000$

$2023$ $$620,000$

Instructions

$($a$)$ Assume the trial balance has been prepared but the books HAVE NOT been closed for $2023.$

Assuming all amounts are material, prepare journal entries showing the adjustments that are

required. $($Ignore income tax considerations$).$

$($b$)$ Assume the trial balance has been prepared but the books HAVE been closed for $2023.$ Assuming

all amounts are material, prepare journal entries showing the adjustments that are required.

$($Ignore income tax considerations$).$

$($c$)$ Prepare a schedule correcting net incomes for $2021,2022$ and $2023$ assuming the books HAVE

NOT been closed for $2023.$