Exercise 6. Effect of omitting adjusting entryAccrued salaries of P3,100 owed to employees for December 30 and 31 are not considered in preparingthe financial statements for the year ended December 31. Indicate which items will be erroneouslystated, because of the error, on (a) the SCI for the year and (b) the SFP as of December 31. Alsoindicate whether the items in error will be overstated or understated.Exercise 7. Adjusting entries for prepaid and accrued taxesMillenium Financial Services was organized on April 1 of the current year. On April 2, Millenium prepaidP1,020 to the city for taxes (license fees) for the next 12 months and debited the prepaid taxes account.Millenium is also required to pay in January an annual tax (on property) for the previous calendar year.The estimated amount of the property tax for the current year (April 1 to December 31) is P10,210.(a) Journalize the two adjusting entries required to bring the accounts affected by the two taxes up todate as of December 31, the end of the current year.(b) What is the amount of tax expense for the current year?Exercise 8. Effects of errors on financial statementsFor a recent period, Circuit City Stores reported accrued expenses and other current liabilities ofP204,561,000. For the same period, Circuit City reported earnings of P528,758,000. If accruedexpenses and other current liabilities had not been recorded, what would have been the earnings(loss)?

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Exercise 6. Effect of omitting adjusting entry Accrued salaries of P3,100 owed to employees for December 30 and 31 are not considered in preparing the financial statements for the year ended December 31. Indicate which items will be erroneously stated, because of the error, on (a) the SCI for the year and (b) the SFP as of December 31. Also indicate whether the items in error will be overstated or understated.

Exercise 6. Effect of omitting adjusting entry Accrued salaries of P3,100 owed to employees for December 30 and 31 are not considered in preparing the financial statements for the year ended December 31. Indicate which items will be erroneously stated, because of the error, on (a) the SCI for the year and (b) the SFP as of December 31. Also indicate whether the items in error will be overstated or understated.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 36RSCQ

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Effect of omitting adjusting entryAccrued salaries owed to employees for October 30 and 31 are not considered in preparing the financial statements for the year ended October 31. Indicate which items will be erroneously stated, because of the error, on (a) the income statement for the year and (b) the balance sheet as of October 31. Also indicate whether the items in error will be overstated or understated.
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Problem 1. You were engaged for the first time to audit the FS of Bebeko Corporation for the periodended December 31, 2020. The company started its operation in 2018. In reviewing the books, theauditor discovered that certain adjustments had either been overlook or improperly recorded at theend of years to 2020. Omissions and other failures for each year are summarized below:
Which of the following types of errors will not self-correct in the next year? Accrued expenses not recognized at year-end Accrued revenues that have not been collected not recognized at year-end Depreciation expense overstated for the year Prepaid expenses not recognized at vear-end
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Exercise 20-19 (Algo) Error correction; inventory error (LO20-6] During 2021, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2019 understated by 2020 overstated by $134,000 178,000 WMC uses the periodic inventory system and the FIFO cost method. Required: 1-a. Determine the effect of 2019 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 1-b. Determine the effect of 2020 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 2. Prepare a journal entry to correct the error in 2021. 3. Will WMC account for the error (a) retrospectively or (b) prospectively?
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