You have been assigned to examine the financial statements of Sage Company for the year ended December 31, 2017. You discover the following situations. 1. 2. 3. 4. 5. Depreciation of $3,100 for 2017 on delivery vehicles was not recorded. The physical inventory count on December 31, 2016, improperly excluded merchandise costing $19,000 that had been temporarily stored in a public warehouse. Sage uses a periodic inventory system. A collection of $5,700 on account from a customer received on December 31, 2017, was not recorded until January 2, 2018. In 2017, the company sold for $3,900 fully depreciated equipment that originally cost $22,600. The company credited the proceeds from the sale to the Equipment account. During November 2017, a competitor company filed a patent-infringement suit against Sage claiming damages of $203,200. 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 $122,100. The company has not reflected or disclosed this situation in the financial statements. Sage has a portfolio of trading investments. No entry has been made to adjust to market. Information on cost and fair value is as follows. 6. Cost December 31, 2016 December 31, 2017 $96,600 $87,800 Fair Value $96,600 $85,900 7. At December 31, 2017, an analysis of payroll information shows accrued salaries of $12,200. The Salaries and Wages Payable account had a balance of $16,300 at December 31, 2017, which was unchanged from its balance at December 31, 2016. A large piece of equipment was purchased on January 3, 2017, for $36,800 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Sage normally uses the straight-line depreciation method for this type of equipment. A $11,400 insurance premium paid on July 1, 2016, for a policy that expires on June 30, 2019, was charged to insurance expense. A trademark was acquired at the beginning of 2016 for $47,500. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years. 9. 10. Assume the trial balance has been prepared but the books have not been closed for 2017. Assuming all amounts are material, prepare journal entries showing the adjustments that are required. (Ignore income tax considerations.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) No. Account Titles and Explanation Debit Credit 1. Depreciation Expense 3100 | Accumulated Depreciation Equipment 3100 No. Account Titles and Explanation Debit Credit 1. Depreciation Expense 3100 Accumulated Depreciation-Equipment 3100 2. Cost of Goods Sold 19000 Retained Earnings 19000 3. Tcash 5700 Accounts Receivable 5700 4. Accumulated Depreciation Equipment 3900 IIIIIIIIIII! Gain on Disposal of Plant Assets 3900 Tequipment 5. Lawsuit Loss T 203200 Lawsuit Liability 203200 6. Unrealized Holding Gain or Loss - Income 8800 7. Salaries and Wages Payable 16300 Salaries and Wages Expense 16300 8. Equipment 36800 Depreciation Expense 36800 Maintenance and Repairs Expense 4600 Accumulated Depreciation Equipment 4600 CDUIHILISHDI LOLITOHIHNDIO 9. Prepaid Insurance 11400 Insurance Expense 11400 Retained Earnings 3800 10. Retained Earnings 47500 Amortization Expense 4750 Trademarks 4750 Presented below are the comparative income and retained earnings statements for Buffalo Inc. for the years 2017 and 2018. 2018 2017 Sales Cost of sales Gross profit Expenses Net income Retained earnings (Jan. 1) Net income Dividends Retained earnings (Dec. 31) $373,000 193,000 180,000 94,600 $85,400 $111,700 85,400 (32,800 ) $164,300 $246,000 135,000 111,000 46,300 $64,700 $72,000 64,700 (25,000 ) $111,700 The following additional information is provided: 1. In 2018, Buffalo Inc. decided to switch its depreciation method from sum-of-the-years' digits to the straight-line method. The assets were purchased at the beginning of 2017 for $92,500 with an estimated useful life of 4 years and no salvage value. (The 2018 income statement contains depreciation expense of $27,750 on the assets purchased at the beginning of 2017.) In 2018, the company discovered that the ending inventory for 2017 was overstated by $23,400; ending inventory for 2018 is correctly stated. 2. Prepare the revised retained earnings statement for 2017 and 2018, assuming comparative statements. (Ignore income taxes.) The following additional information is provided: 1. In 2018, Buffalo Inc. decided to switch its depreciation method from sum-of-the-years' digits to the straight-line method. The assets were purchased at the beginning of 2017 for $92,500 with an estimated useful life of 4 years and no salvage value. (The 2018 income statement contains depreciation expense of $27,750 on the assets purchased at the beginning of 2017.) In 2018, the company discovered that the ending inventory for 2017 was overstated by $23,400; ending inventory for 2018 is correctly stated. 2. Prepare the revised retained earnings statement for 2017 and 2018, assuming comparative statements. (Ignore income taxes.) BUFFALO INC. Retained Earnings Statement For the Year Ended 2018 2017 X Retained Earnings, January 1, unadjusted 111,700 Less Correction of Error for Inventory Overstatement 234001 3. Retained Earnings, January 1, adjusted 102175 102175] 1 72000 Taddy.Net Income 113425 55175 -328000 7 55175 -25000 Less 1. Dividends -32800 Retained Earnings, December 31 182800 102175