Error Analysis

Student Name:ACFI-592/492 Project #2 Scoring
Possible
Points
Adjusting Entries – Books Open (10 @ 2.25 each)
22,5
Adjusting Entries – Books Closed (10 @ 2.25 each)
22,5
Points
Earned
Part C
Net Income
3,25
Adjustments to Net Income 2021
9
Adjustments to Net Income 2022
15,75
Adjustments to Net Income 2023
27
Total Score
100
0
Project #2 Part A
Prepare the adjusting entries assuming the Books have NOT been closed for 2023.
Note that you may not need all the rows.
1)
Debit
Credit
2)
Debit
Credit
3)
Debit
Credit
4)
Debit
Credit
5)
Debit
Credit
6)
Debit
Credit
7)
Debit
Credit
8)
Debit
Credit
9)
Debit
Credit
10)
Debit
Credit
Project #2 Part B
Prepare the adjusting entries assuming the Books HAVE been closed for 2023.
Note that you may not need all the rows.
1)
Debit
Credit
2)
Debit
Credit
3)
Debit
Credit
4)
Debit
Credit
5)
Debit
Credit
6)
Debit
Credit
7)
Debit
Credit
8)
Debit
Credit
9)
Debit
Credit
10)
Debit
Credit
Project #2 Part C
Name: ________________________________
Complete the schedule correcting net income for 2021, 2022 and 2023
assuming the books have NOT been closed in 2023.
2021
Reported Net Income
(1) Change in Depr. Method
(2) Inventory/CGs
(3) Supplies
(4) Sale of Equipment
(5) Depreciation
(6) Warranty
(7) Trademark
(8) Insurance
(9) Patent-infringement suit
(10) Commissions
Corrected Net Income
2022
2023
ACFI-492/592 Advanced Financial Reporting
Fall 2023
Project #2
You have been assigned to examine the financial statements of Mari, Inc. for the year ended December
31, 2023. You discover the following situations in February 2024.
1.
On December 31, 2023, 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 January 2, 2022. It has a 10-year useful life and $5,300 salvage value.
Depreciation expense recorded prior to 2023 under the double-declining-balance method was
$20,000. Mari, Inc. has already recorded 2023 depreciation expense of $16,000.
2.
The physical inventory count has been incorrectly counted resulting in the following errors.
December 2021 Overstated
$7,600
December 2022 Understated $5,200
December 2023 Overstated $5,600
3.
Mari, Inc. purchased $3,400 of supplies on September 4, 2023, recording a debit to Supplies
Expense and credit to Cash. The Supplies account had a balance of $450 on January 1, 2023. A
count revealed there were $700 on hand on December 31, 2023. No entries have been made to
Supplies all year.
4.
In 2023, the company sold equipment for $7,200 that had a book value of $4,200 and originally
cost $60,000. The company credited the proceeds from the sale to the Equipment account. The
company made the following entry:
Cash
7,200
Gain on Sale of Equipment
7,200
5.
Mari, Inc. has not recorded any depreciation for a machine they purchased on October 1, 2021.
They paid $250,000 for the machine which has a salvage value of $10,000 and useful life of 6
years.
6.
The company has estimated warranty expense to be 1.8% in the past and made an entry for
$145,00 in 2023. However, the company decided that it should only be 1.6% this year which
amounts to $125,000.
7.
A trademark was acquired January 2, 2022 for $40,000. No amortization has been recorded since
its acquisition. The maximum allowable amortization period is 10 years.
8. A $24,000 insurance premium was paid on September 1, 2022, for a six month policy that expires
on February 28, 2023, was charged to insurance expense in 2022.
9.
In July 2021, a competitor company filed a patent-infringement suit against Jordan, Inc. claiming
damages of $140,000. In December 2021 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 made the following entry in 2023.
Patent-infringement Expense
85,000
Lawsuit Liability
85,000
10. Mari, Inc. has not accrued commissions payable at the end of each of the last 3 years, as follows.
Salaries are expensed when paid the 1st week of January in 2024.
December 2021
$3,800
December 2022
$5,300
December 2023
$4,200
Reported Net Income is:
2021
$745,000
2022
$720,000
2023
$690,000
Instructions
(a) Assume the trial balance has been prepared but the books HAVE NOT been closed for 2023.
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 2023. Assuming
all amounts are material, prepare journal entries showing the adjustments that are required.
(Ignore income tax considerations).
(c) Prepare a schedule correcting net incomes for 2021, 2022 and 2023 assuming the books HAVE
NOT been closed for 2023.