1. You have been assigned to examine the financial statements of Mari, Inc. for the year ended December 31, 2022. You discover the following situations in February 2023.

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

Salaries are expensed when paid.

December 2020 $5,500

December 2021 $7,800

December 2022 $0

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

December 2020 Understated $9,400

December 2021 Overstated $4,200

December 2022 Overstated $ 6,000

Mari, Inc. purchased $3,700 of supplies on August 12, 2022, recording a debit to Supplies Expense and credit to Cash. The Supplies account had a balance of $2,400 on January 1, 2022. A count revealed there were $1,100 on hand on December 31, 2022. No entries have been made to Supplies all year.

In 2022, the company sold equipment for $5,800 that had a book value of $4,200 and originally cost $55,000. The company credited the proceeds from the sale to the Equipment account. The company made the following entry:

Cash 5,800

Equipment 5,800

On December 31, 2022, Mari, 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 $6,400 salvage value. Depreciation expense recorded prior to 2022 under the double-declining-balance method was $10,000. Mari, Inc. has already recorded 2022 depreciation expense of $18,000.

During November 2021, a competitor company filed a patent-infringement suit against Mari, Inc. claiming damages of $150,000. In September 2022 the companys legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the courts award to the competitor is $65,000. The company has not reflected or disclosed this situation in the financial statements.

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.

2020 $840

2021 760

2022 900

Mari, Inc. has not recorded any depreciation for a machine they purchased on July 1, 2021. They paid $180,000 for the machine which has a useful life of 6 years.

The company has estimated warranty expense to be 2% in the past and made an entry for $200,000 in 2022. However, the company decided that it should only be 1.8% this year which amounts to $180,000.

A $24,000 insurance premium paid on June 1, 2021, for a policy that expires on May 31, 2022, was charged to insurance expense in 2021.

Reported Net Income is:

2020	$560,000
2021	$580,000
2022	$620,000

Instructions

Assume the trial balance has been prepared but the books HAVE NOT been closed for 2022. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

Assume the trial balance has been prepared but the books HAVE been closed for 2022. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations).

Prepare a schedule correcting net incomes for 2020, 2021 and 2022 assuming the books HAVE NOT been closed for 2022.