1. What is the total effect of the errors on the 2020 net income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Give solutions and explainations in each questions
Transcribed Image Text:PROBLEM 6-5 Comprehensive
You have been asked by a client to audit the financial statements of Half-Hearted
Company for the first time. In examining the books, you found out that certain
adjustments had been overlooked at the end of 2020 and 2021. You also
discovered that other items had been improperly recorded. These omissions and
other failures for each year are summarized below:
2020
2021
Merchandise inventory, end
P10,000
P8,000
understated
overstated
Advances to supplier were recorded as
purchases but the merchandise was received in
the following year:
Advances from customers recorded as sales but
the goods were delivered in the following year:
Improvements on building had been charged to
expense on January 1, 2020. Improvements have
a life of 5 years.
On January 1, 2020, an equipment costing
P40,000 was sold for P20,000. At the date of sale,
the equipment had an accumulated depreciation
of P15,000. The cash received was recorded as
other income in 2020.
30,000
40,000
20,000
70,000
100,000
Questions:
Based on the above and the result of your audit, answer the following:
1. What is the total effect of the errors on the 2020 net income?
c. Overstated by P115,000
d. Understated by P55,000
Understated by P45,000
b. Understated by P25,000
a.
2. What is the total effect of the errors on the 2021 net income?
c. Overstated by P68,000
d. Overstated by P38,000
Overstated by P32,000
b. Overstated by P42,000
a.
3. What is the total effect of the errors on the company's working capital on
December 31, 2021?
Overstated by P22,000
b. Understated by P48,000
c. Overstated by P70,000
d. Overstated by P30,000
a.
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