In an analysis of the statement of ABC Company for the year ended December 31, 2021, the following errors are discovered: 1. ABC paid three - year insurance premium of P 239,400 effective April 1, 2020. The entire amount was debited to expense account and no adjustment was made at the end of 2020 and 2021. 2. ABC leased a portion of its building for P 480,420. The term of the lease is three years starting March 1, 2019. Collection of rent was credited to unearned revenue account. At the end of 2020 and 2021, no entry was made to adjust the transaction. 3. Depreciation expense in 2020 was understated by P 12,000. 4. Depreciation expense in 2020 was overstated by P 14,000. 5. Bad debts expense of 11,000 was not recorded in 2021. 6. Major repairs on the company's furniture and fixture for the years 2019 and 2020 in amount of P 30,000 and P 60,000, respectively, were recognized as outright expenses. The company depreciate furniture and fixture at 15% per annum, but depreciation in the year of expenditure is at 10%. Given this, compute for the status of 2020 net income, whether it is overstated or understated. (indicate negative sign if overstated)
In an analysis of the statement of ABC Company for the year ended December 31, 2021, the following errors are discovered: 1. ABC paid three - year insurance premium of P 239,400 effective April 1, 2020. The entire amount was debited to expense account and no adjustment was made at the end of 2020 and 2021. 2. ABC leased a portion of its building for P 480,420. The term of the lease is three years starting March 1, 2019. Collection of rent was credited to unearned revenue account. At the end of 2020 and 2021, no entry was made to adjust the transaction. 3. Depreciation expense in 2020 was understated by P 12,000. 4. Depreciation expense in 2020 was overstated by P 14,000. 5. Bad debts expense of 11,000 was not recorded in 2021. 6. Major repairs on the company's furniture and fixture for the years 2019 and 2020 in amount of P 30,000 and P 60,000, respectively, were recognized as outright expenses. The company depreciate furniture and fixture at 15% per annum, but depreciation in the year of expenditure is at 10%. Given this, compute for the status of 2020 net income, whether it is overstated or understated. (indicate negative sign if overstated)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In an analysis of the statement of ABC Company for the year ended December 31, 2021, the following
errors are discovered:
1. ABC paid three - year insurance premium of P 239,400 effective April 1, 2020. The entire amount
was debited to expense account and no adjustment was made at the end of 2020 and 2021.
2. ABC leased a portion of its building for P 480,420. The term of the lease is three years starting
March 1, 2019. Collection of rent was credited to unearned revenue account. At the end of 2020
and 2021, no entry was made to adjust the transaction.
3. Depreciation expense in 2020 was understated by P 12,000.
4. Depreciation expense in 2020 was overstated by P 14,000.
5. Bad debts expense of 11,000 was not recorded in 2021.
6. Major repairs on the company's furniture and fixture for the years 2019 and 2020 in amount of P
30,000 and P 60,000, respectively, were recognized as outright expenses. The company depreciates
furniture and fixture at 15% per annum, but depreciation in the year of expenditure is at 10%.
Given this, compute for the status of 2020 net income, whether it is overstated or understated.
(indicate negative sign if overstated)
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