In your audit of Payton Industries for calendar year 20X0, you found some issues

that you believe represent possible adjustments to the company's books. In

addition, there are others issues that need to be addressed.

All issues are listed below:

1. On 23 December 20X0, Payton Ltd declared a bonus issue of 1000 shares

with a par value of $100 000 of its ordinary shares, payable 2 February

20X1 to the ordinary shareholders on record as at 30 December 20X0.

2. Several debit memos that were processed and recorded after year-end

relate to purchases and accounts payable for 20X0. These total $30 000.

3. Inventory cut off tests indicate that $35 000 of inventory received on 30

December 20X0 was recorded as purchases and accounts payable in

20X1. These items were included in the inventory count at year-end and

were therefore included in ending inventory.

4. Electricity and other utilities' invoices received after the cut-off date $37 000.

5. The company has not established a reserve for obsolescence of

inventories. Your tests indicate that such a $33 000 reserve is appropriate

under the circumstances.

6. Your review of the allowance for doubtful accounts indicates that it is

understated by $42 000.

7. The company was concerned about the possibility of a liability, amounting

to $94 000, that may result from an income tax dispute.

8. One of the directors at Payton Ltd was a major shareholder in Fortune

Manufacturing, who is their largest trade debtor (contract signed for $ 400

000 this year).

You have noticed that the management's attitude is that "once the books are

closed, they're closed", and they do not want to make any adjustments.

Planning materiality for the engagement was $110 000, determined by calculating

5% of expected profit before taxes.

Actual profit before taxes on the financial statements prior to any adjustments is

$1 552 700.

Required:

a. Prepare the required adjusting journal entries and explain the treatment of all other issues