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You have been assigned to examine the financial statement of Jackson, Inc. for the year ended December 31, 2017. You discover the following situations in February 2018.

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

December 2015 $5,500

December 2016 $7,800

December 2017 $7,000

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

December 2015 Overstated $20,000

December 2016 Understated $16,500

December 2017 Overstated $6,000

iii. Jackson, Inc. purchased $ 2,300 of supplies on December 19, 2017 recording a debit to supplies and credit to Account Payable. The bill was paid on December 30, 2017, but not recorded until January 3, 2018.

iv. In 2017, the company sold for $3,500 equipment that had a book value of $2,000 and originally cost $30,000. The company credit the proceeds from the sale to the equipment account. The company made the following entry:

Cash 3,500

Equipment 3,500

v. At December 31, 2017 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. 2015. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2017 under the double-declining-balance method was $28,000. Jackson, Inc. has already recorded 2017 depreciation expense $14,400 using the double-declining-balance.

vi. During November 2017, 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 $85,000. The company has not reflected or disclosed this situation in the financial statements.

vii. A $24,000 insurance premium paid on April 1, 2017 for a policy that expires on March 30, 2018, was charged to insurance expense.

viii. A trademark was acquired at the beginning of 2014 for $50,000. No amortization has been recorded snice its acquisition. The maximum allowable amortization period is 10 years.

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

2015 $1,400

2016 800

2017 1,120

x. 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 each year, machines billed and in the hands of consignees amounted to:

2015 $6,000

2016 None

2017 5,590

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 on consignment at December 31.

xi. Reported Net Income is:

2015 $560,000

2016 $580,000

2017 $620,000

Instructions.

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).

b). Assume the trial balance has been prepared but the books HAVE been closed for 2017. Assuming all amounts are material, prepare journal entries showing the adjustment that are required. (Ignore income tax considerations.)

c). Prepare a schedule correcting net incomes for 2015, 2016 and 2017 assuming the books HAVE NOT been closed for 2017

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