Company started operations on January 1, 2019. Financial Statements for 2019 and 2020 contained the following errors:                                                                 December 31, 2019                December 31, 2020 Ending inventory                              P55,000 overstated                     P65,000 understated Depreciation expense                     35,000 overstated                                - Insurance expense                           25,000 understated                 25,000 overstated          Prepaid insurance                              25,000 overstated                                - Additionally, a fully depreciated equipment was sold for P12,000 on December 31, 2020. The sale was not recorded until 2021. No corrections have been made for any of the errors. (Ignore income tax considerations) How much would be the total effect of the errors in company's 2020 net income? A.Overstated by P83,000 B.Understated by P157,000 C.Overstated by P48,000 D.Understated by P102,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Company started operations on January 1, 2019. Financial Statements for 2019 and 2020 contained the following errors:

                                                                December 31, 2019                December 31, 2020

Ending inventory                              P55,000 overstated                     P65,000 understated

Depreciation expense                     35,000 overstated                                -

Insurance expense                           25,000 understated                 25,000 overstated         

Prepaid insurance                              25,000 overstated                                -

Additionally, a fully depreciated equipment was sold for P12,000 on December 31, 2020. The sale was not recorded until 2021. No corrections have been made for any of the errors. (Ignore income tax considerations)

How much would be the total effect of the errors in company's 2020 net income?

A.Overstated by P83,000

B.Understated by P157,000

C.Overstated by P48,000

D.Understated by P102,000

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