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1. What is the total effect of the errors on the 2020 net income?

1. What is the total effect of the errors on the 2020 net income?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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. 129
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. 129
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