8-9 You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted 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 errors for each year were summarized: 12-31-2021 12-31-2020 Salaries Payable 780,000 873,600 Interest Receivable 213,000 259,200 Prepaid Insurance 307,800 384,000 Advances from Customers 561,000 470,400 (Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year) Machinery 522,000 564,000 (Capital expenditures had been recorded as repairs but should have been charged to Machinery; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%) What is the total effect of the errors on the 2020 net income? Group of answer choices none of the choices Overstated by P165,000 Overstated by P80,400 Understated by P775,800 Understated by P1,236,600 What is the total effect of the errors on the 2021 net income? Group of answer choices Overstated by P324,300 Overstated by P380,700 Understated by P376,500 none of the choices Understated by P320,100
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
8-9
You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted 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 errors for each year were summarized:
|
|
12-31-2021 |
12-31-2020 |
|
Salaries Payable |
780,000 |
873,600 |
|
Interest Receivable |
213,000 |
259,200 |
|
Prepaid Insurance |
307,800 |
384,000 |
|
Advances from Customers |
561,000 |
470,400 |
|
(Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year) |
|
|
|
Machinery |
522,000 |
564,000 |
|
(Capital expenditures had been recorded as repairs but should have been charged to Machinery; the |
|
|
What is the total effect of the errors on the 2020 net income?
Group of answer choices
none of the choices
Overstated by P165,000
Overstated by P80,400
Understated by P775,800
Understated by P1,236,600
What is the total effect of the errors on the 2021 net income?
Group of answer choices
Overstated by P324,300
Overstated by P380,700
Understated by P376,500
none of the choices
Understated by P320,100
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