Case 5 You are auditing the financial statement of Pasig Company for the fllst tume You have discovered that the merchandise inventory at the end of ee year was understated by P50,000 and P100,000 in 2020 and 2021 respectively. In addition, in inspecting the record of the company, you discovered that some items had been improperly recorded and that certain year-end adjustments had been overlooked in 2020 and 2021. These omission and other errors for each year were summarized as follows: 12/31/2021 12/31/2020 Accrued Salaries Accrued Interests Income P390,000 106,500 153,900 a P436,800 ourn129,600 192,000 Prepaid Insurance Advances from Customers (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 (Capital expenditures had been records 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%.) 280,500 235,200 261,000 282,000
Case 5 You are auditing the financial statement of Pasig Company for the fllst tume You have discovered that the merchandise inventory at the end of ee year was understated by P50,000 and P100,000 in 2020 and 2021 respectively. In addition, in inspecting the record of the company, you discovered that some items had been improperly recorded and that certain year-end adjustments had been overlooked in 2020 and 2021. These omission and other errors for each year were summarized as follows: 12/31/2021 12/31/2020 Accrued Salaries Accrued Interests Income P390,000 106,500 153,900 a P436,800 ourn129,600 192,000 Prepaid Insurance Advances from Customers (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 (Capital expenditures had been records 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%.) 280,500 235,200 261,000 282,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
whats the answer in question 2?
Transcribed Image Text:a. Po40,000
You are auditing the financial statement of Pasig Company for the first fime
You have discovered that the merchandise inventory at the end
Case 5
each
asn respectively. In addition, in inspecting the record of the company, you
discovered that some items had been improperly recorded and that certain
year-end adjustments had been overlooked in 2020 and 2021.
These omission and other errors for each year were summarized as
follows:
em 12/31/2020
P436,800
129,600
192,000
12/31/2021
Accrued Salaries
Accrued Interests Income
P390,000
106,500
153,900
Prepaid Insurance
Advances from Customers
(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 (Capital expenditures had
been records 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%.)
280,500
235,200
261,000
282,000
Transcribed Image Text:Chapter 1: Audit Planning and Misstate ment
Determine the following as a result of your audit:
1. What is the total effect of the errors on the 2020 net income?
a. increased by P15,000
b. decreased by P22,000
c. decreased by P32,500
d. increased by P11,500
2. What is the total effect of the errors on the 2021 net income?
a. increased by P210,050
b. decreased by P205,550
c. decreased by P132,500
d. increased by P242,550
3. What is the total effect of the errors on the balance of the company's
retained earnings at December 31, 2021?
a. increased by P177,550
b. decreased by P122,050
c. decreased by P132,550
d. increased by P171,550
4. What is the total effect of the errors on the company's working capital
at December 31, 2021?
a. decreased by P150,550
b. decreased by P202,000
2
c. decreased by P302,500
d. decreased by P310,100
5. The necessary adjusting journal entry for the error in recording capital
expenditures on Machinery as of December 31, 2021 would include a:
a. a debit to machinery of P543,000
b. a credit to retained earnings of P323,250
c. a debit to depreciation expense of P13,050
d. a credit to accumulated depreciation of P41,250
Case 6
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