Cromwell Company began operations on January 1, 20x1. Financial statements for the years ended December 31, 20x1 and 20x2 contained the following errors: 20x1 20x2 Ending inventory P320,000 understated P300,000 overstated Depreciation expense 120,000 understated Insurance expense 200,000 overstated 200,000 understated Prepaid insurance 100,000 understated The reported net income for 20x1 is P648,000 and P894,000 for 20x2. In addition, on December 31, 20x2, a fully depreciated machinery was sold for P216,000 cash, but the sale was not recorded until 20x3. There were no other errors during 20x1 and 20x2, and no corrections have been made for any of the errors. Ignore income tax effects. REQUIRED: Compute the total effects of errors and indicate whether overstated or understated. 5. Total effect of the errors on Elizabeth’s 20x1 net income _____________ 6. Total effect of the errors on Elizabeth’s 20x2 net income _____________ 7. Total effect of the errors on Elizabeth’s working capital on December 31, 20x2 __
Cromwell Company began operations on January 1, 20x1. Financial statements for the years ended December
31, 20x1 and 20x2 contained the following errors:
20x1 20x2
Ending inventory P320,000 understated P300,000 overstated
Depreciation expense 120,000 understated
Insurance expense 200,000 overstated 200,000 understated
Prepaid insurance 100,000 understated
The reported net income for 20x1 is P648,000 and P894,000 for 20x2. In addition, on December 31, 20x2, a
fully
no other errors during 20x1 and 20x2, and no corrections have been made for any of the errors. Ignore income
tax effects.
REQUIRED: Compute the total effects of errors and indicate whether overstated or understated.
5. Total effect of the errors on Elizabeth’s 20x1 net income _____________
6. Total effect of the errors on Elizabeth’s 20x2 net income _____________
7. Total effect of the errors on Elizabeth’s
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