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walid-nour

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Walid MostafaEmily Carr University

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English1Business1Mechanical Engineering1Prealgebra1Sociology1Geography1Nursing1Ethics1Computer Science1Accounting5Biology1Economics5
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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. Put together a schedule correcting net incomes for 2021, 2022 and 2023 assuming the books HAVE NOT been closed for 2023. 

Answer: Step-by-step explanation: Sure Thing! here is your detailed answer :-)...

Steve Reese is a well-known interior designer in Fort Worth,Texas. He wants to start his own business and convinces RobO’Donnell, a local merchant, to contribute the capital to form apartnership. On January 1, 2016, O’Donnell invests a building worth$128,000 and equipment valued at $136,000 as well as $56,000 incash. Although Reese makes no tangible contribution to thepartnership, he will operate the business and be an equal partnerin the beginning capital balances.

To entice O’Donnell to join this partnership, Reese draws up thefollowing profit and loss agreement:

  • O’Donnell will be credited annually with interest equal to 20percent of the beginning capital balance for the year.
  • O’Donnell will also have added to his capital account 15percent of partnership income each year (without regard for thepreceding interest figure) or $8,000, whichever is larger. Allremaining income is credited to Reese.
  • Neither partner is allowed to withdraw funds from thepartnership during 2016. Thereafter, each can draw $7,000 annuallyor 20 percent of the beginning capital balance for the year,whichever is larger.

The partnership reported a net loss of $10,000 during the firstyear of its operation. On January 1, 2017, Terri Dunn becomes athird partner in this business by contributing $60,000 cash to thepartnership. Dunn receives a 20 percent share of the business’scapital. The profit and loss agreement is altered as follows:

  • O’Donnell is still entitled to (1) interest on his beginningcapital balance as well as (2) the share of partnership income justspecified.
  • Any remaining profit or loss will be split on a 6:4 basisbetween Reese and Dunn, respectively.

Partnership income for 2017 is reported as $98,000. Each partnerwithdraws the full amount that is allowed.

On January 1, 2018, Dunn becomes ill and sells her interest inthe partnership (with the consent of the other two partners) toJudy Postner. Postner pays $145,000 directly to Dunn. Net incomefor 2018 is $115,000 with the partners again taking their fulldrawing allowance.

On January 1, 2019, Postner withdraws from the business forpersonal reasons. The articles of partnership state that anypartner may leave the partnership at any time and is entitled toreceive cash in an amount equal to the recorded capital balance atthat time plus 10 percent.

  1. Prepare journal entries to record the preceding transactions onthe assumption that the bonus (or no revaluation) method is used.Drawings need not be recorded, although the balances should beincluded in the closing entries.

  • 1-Record the initial investment of assets by partners.

  • 2-Record the distribution of net income to partners.

  • 3-Record the admittance of Dunn into the partnership.

  • 4-Record entry to close drawings accounts.

  • 5-Record the distribution of net income to partners.

  • 6-Record the admittance of Postner into the partnership.

  • 7-Record entry to close drawings accounts.

  • 8-Record the distribution of net income to partners.

  • 9-Record cash paid to the withdrawing partner.

Please help have been struggling with the question forhours!

Please number all journal entries for clarity.

Account titles: no journal entry required, a/p, a/r, building,cash, dunn capital, dunn drawings, equipment, income summary,interest expense, interest income, interest payable, interestreceivable, o'donnell capital, o'donnell drawings, postner capital,postner drawings, reese capital, reese drawings

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