assigned to examine the financial statements of Jackson, Inc. for the year ended

Question

assigned to examine the financial statements of Jackson, Inc. for the year ended December 31, 2017. You discover the following situations in February 2018 You discover the following situations in February 2018, 1. 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 2. 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 3 Jackson, Inc. purchased $2,300 of supplies on December 19, 2017 recording a debit to Supplies and credit to Accounts Payable. The bill was paid on December 30, 2017, but not recorded until January 3, 2018 4. In 2017, 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 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 of $14,400 using the double-declining- balance. 6. During November 2017, 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 $85,000. The company has not reflected or disclosed this situation in the financial statements. 7. A $24,000 insurance premium paid on April 1, 2017 for a policy that expires on March 30, 2018, was charged to insurance expense. 8. A trademark was acquired at the beginning of 2014 for $50,000. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years.

Explanation / Answer

Answer Part A

1. Salary a/c    Dr. $ 5,500

   To Outstanding Salary $5.500

2. Trading a/c Dr. $6,000

To Inventory    $6,000

3. Jackson a/c Dr.    $2,300

   To Bank $2,300

4. Accumulated Depreciation a/c Dr. $28,000

To Equipment a/c    $26,500

To Profit on sale of Equipment $1500

5 Change in Accounting Policies    A/c Dr    $17400

To Accumulated Depreciation $17400

6. Damages a/c Dr. $85,000

To Provision for contingent Liability $85,000

7. Prepaid Insurance Expenses a/c Dr.    $6000

To Insurance Expenses $6000

8. Amortisation a/c Dr.    $20000

To Accumulated Amortisation of patent    $20000

9. Commission a/c Dr. $1,120

To Outstanding Commission    $1,120

10. Sales A/c Dr. $5,590

To Consignee a/c $5,590

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Answer B.

Jackson a/c Dr.    $2,300 Accumulated Depreciation a/c Dr. $28,000 Prepaid Insurance Expenses a/c Dr.    $6000 Prior Period Profit a/c Dr. $133,110 To Inventory $6,000 To Outstanding Salary $5,500 To Bank $2,300 To Equipment a/c    $26,500 To Accumulated Depreciation $17400 To Provision for contingent Liability    $85,000 To Accumulated Amortisation of patent $20000 To Outstanding Commission $1,120 To Consignee a/c    $5,590

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