A, B and C are partners sharing profits and loss in 3:3:4 ratio. On January 2, 2021, D was admitted into the partnership with a 20% share in profits. The old partners continue to participate in profits or loss proportionate to their original ratios. For the year 2021, the partnership books showed a net profit of P125,000. It was disclosed however, that the following errors were made: 2020 2,500 3,600 2021 Accrued expenses not recognized Expired portion of prepaid insurance not adjusted Inventory overstated Unrecorded purchases, still in transit, FOB SP Office supplies used, not recognized 5,000 10,000 4,000 The total effects of the errors in the capital of the firm (ignore income tax effect):

A, B and C are partners sharing profits and loss in 3:3:4 ratio. On January 2, 2021, D was admitted into the partnership with a 20% share in profits. The old partners continue to participate in profits or loss proportionate to their original ratios. For the year 2021, the partnership books showed a net profit of P125,000. It was disclosed however, that the following errors were made: 2020 2,500 3,600 2021 Accrued expenses not recognized Expired portion of prepaid insurance not adjusted Inventory overstated Unrecorded purchases, still in transit, FOB SP Office supplies used, not recognized 5,000 10,000 4,000 The total effects of the errors in the capital of the firm (ignore income tax effect):

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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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

The total effects of the errors in the capital of the firm (ignore income tax effect)

a. Understated by P1,000

b. Understated by P1,000

c. Overstated by P9,000

d. Overstated by P4,000

A, B and C are partners sharing profits and loss in 3:3:4 ratio. On January 2, 2021, D was
admitted into the partnership with a 20% share in profits. The old partners continue to
participate in profits or loss proportionate to their original ratios. For the year 2021, the
partnership books showed a net profit of P125,000. It was disclosed however, that the
following errors were made:
2020
2021
|Accrued expenses not recognized
Expired portion of prepaid insurance not adjusted
Inventory overstated
Unrecorded purchases, still in transit, FOB SP
| Office supplies used, not recognized
2,500
3,600
5,000
10,000
4,000
The total effects of the errors in the capital of the firm (ignore income tax effect):

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