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.

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 $5,500 December 2018 $7,800 December 2019 $0

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

December 2017 Overstated $20,000

December 2018 Understated $4,200

December 2019 Overstated $6,000

3) Jackson Inc. purchased $4,500 of supplies on Dec. 19, 2019 recording a debit to supplies and a credit to accounts payable. The bill was paid on Dec. 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 Dec.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 purchases 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 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 $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 Dec 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 $6,500 2018 $0 2019 $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 $560,000 2018 $580,000 2019 $620,000

INSTRUCTIONS

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

B) Assuming the trial balance has been prepared but the books HAVE BEEN CLOSED for 2019. Assume 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 2017, 2018, 2019 assuming the books HAVE NOT been closed for 2019.