The first audit of the books of Blue Company was made for the year ended December 31, 2026. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are: 1. 2. 3. 4. 5. In 2026, the company wrote off $86,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings. 1. Prepare the journal entries necessary in 2026 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax. (Credit account titles are automatically indented when the 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. Round answers to O decimal places, e.g. 1250. List all debit entries before credit entries.) No. Account Titles and Explanation 2 At the beginning of 2024, the company purchased a machine for $561,000 (salvage value of $56,100) that had a useful life of 6 years. The bookkeeper used straight-line depreciation but failed to deduct the salvage value in computing the depreciation base for the 3 years. At the end of 2025, the company failed to accrue sales salaries of $44,000. A tax lawsuit that involved the year 2024 was settled late in 2026. It was determined that the company owed an additional $86,000 in taxes related to 2024. The company did not record a liability in 2024 or 2025 because the possibility of loss was considered remote, and charged the $86,000 to a loss account in 2026. 3. Blue Company purchased a copyright from another company early in 2024 for $51,000. Blue had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years. 5. Accumulated Depreciation-Machinery Depreciation Expense Retained Earnings Retained Earnings Salarles and Wages Expense No Entry No Entry Amortization Expense Retained Earnings Copyrights Loss Due to Write off of Inventory Debit Credit 000000000 JOOOOOOOOOO