In 2019, NMD Inc. tapped you to audit its financial statements for the first time. You completed the audit for 2019 and prepared the audited financial statements directly from the audit working papers. You have returned to make the 2020 audit and discovered that the client's bookkeeper failed to record the adjusting entries you made in 2019 audit working papers, which entailed the adjustments for the following items: A. The December 31, 2019 inventory was understated by P300,000. B. No entry was made for accrued utilities expense of P115,000 as of year-end. c. Ordinary motor repairs of P19,200 was charged to Accumulated Depreciation during 2019. D. The entity failed to record the provision for uncollectible accounts in the amount of P36,000.
In 2019, NMD Inc. tapped you to audit its financial statements for the first time. You completed the audit for 2019 and prepared the audited financial statements directly from the audit working papers. You have returned to make the 2020 audit and discovered that the client's bookkeeper failed to record the adjusting entries you made in 2019 audit working papers, which entailed the adjustments for the following items: A. The December 31, 2019 inventory was understated by P300,000. B. No entry was made for accrued utilities expense of P115,000 as of year-end. c. Ordinary motor repairs of P19,200 was charged to Accumulated Depreciation during 2019. D. The entity failed to record the provision for uncollectible accounts in the amount of P36,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
By how much would the December 31, 2020 retained earnings be misstated if the books are not yet closed? *
- Retained earnings is overstated by P70,800
- Retained earnings is overstated by P76,800
- Retained earnings is overstated by P94,800
- Retained earnings is overstated by P58,800
Transcribed Image Text:In 2019, NMD Inc. tapped you to audit its financial statements for the first time. You completed the
audit for 2019 and prepared the audited financial statements directly from the audit working papers.
You have returned to make the 2020 audit and discovered that the client's bookkeeper failed to record
the adjusting entries you made in 2019 audit working papers, which entailed the adjustments for the
following items:
A. The December 31, 2019 inventory was understated by P300,000.
B. No entry was made for accrued utilities expense of P115,000 as of year-end.
c. Ordinary motor repairs of P19,200 was charged to Accumulated Depreciation during 2019.
D. The entity failed to record the provision for uncollectible accounts in the amount of P36,000.
Your examination of the 2020 entries in the accounts uncovered the following:
a. An expenditure of P60,000 for repairs of office equipment had been charged to Furniture
and Equipment. The entity records depreciation at 10% of the December 31 balance of the
Property and Equipment accounts.
b. 2019 accounts receivable in the amount of P24,000 had been written off as uncollectible by
a charge to Retained Earnings.
Salesmen's commission includes P14,400 paid on undelivered customers' orders.
C.
The audited income for 2019 is P1,600,000. The unadjusted net income for 2020 is
P1,920,000.
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