1. You have been assigned to examine the financial statements of Jackson, Inc. for the year ended December 31, 2019. You discover the following situations in February 2020.

1. Jackson, Inc. has not accrued salaries payable at the end of each of the last 3 years, as follows. Salaries are expensed when paid.

December 2017 December 2018 December 2019

$5,500 $7,800 $0

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

December 2017 December 2018 December 2019

Overstated $20,000 Understated $4,200 Overstated $ 6,000

3. Jackson, Inc. purchased $4,500 of supplies on December 19, 2019 recording a debit to Supplies and credit to Accounts Payable. The bill was paid on December 26, 2019, but not recorded until January 2, 2020.

4. In 2019, the company sold for $3,500 equipment that had a book value of $2,000 and originally cost $30,000. The company credited the proceeds from the sale to the Equipment account. The company made the following entry:

Cash 3,500 Equipment

3,500

5. At December 31, 2019 Jackson, 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, 2017. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2019 under the double-declining-balance method was $28,000. Jackson, Inc. has already recorded 2019 depreciation expense of $14,400 using the double-declining balance.

6. During November 2019, a competitor company filed a patent-infringement suit against Jackson, Inc.claiming damages of $150,000. The companys legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the courts award to the competitor is $70,000. The company has not reflected or disclosed this situation in the financial statements.

7. A $24,000 insurance premium paid on June 1, 2019 for a policy that expires on May 31, 2020, was charged to insurance expense.

8. A trademark was acquired at the beginning of 2018 for $50,000. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years.

9. Commissions on sales have been entered when paid. Commissions payable on December 31 of each year were as follows.

   2017 $1,400 2018 800 2019 620

10. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On December 31 of each years, machines billed and in the hands of consignees amounted to:

2017 2018 2019 

$ 6,500 0 10,500

Assume the goods were sold the following year and that the Gross Profit rate is 20% and the inventory at the end of each year included the machines which were at on consignment at December 31.

11. Reported Net Income is:

2017. 2017 $560,000

2018. 2018 $580,000

2019. 2019 $620,000

Instructions

1. (a) Assume the trial balance has been prepared but the books HAVE NOT been closed for 2019. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

2. (b) Assume the trial balance has been prepared but the books HAVE been closed for 2019. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

3. (c) Prepare a schedule correcting net incomes for 2017, 2018 and 2019 assuming the books HAVE NOT been closed for 201

4. .

2012 2011 2012 Reported Net Income 14 Sale of OM