Problem 5. You were engaged by Kuting Corp. to audit its financial Statements for the first time. In examining the company's books, you discovered that certain adjustments had been overlooked at the end of 2013 and 2014. Moreover, you also discovered that other Items had been erroneously recorded. The said omissions and other failures for each year are noted below: 2014 2013 256, 000 582, 400 172, 800 313, 600 376,000 Prepaid Insurance Accrued salaries and wages Accrued interest income Advances from customers Capital expenditures charged as repairs expense Audit notes: a. Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year. b. Capital expenditures had been recorded as repairs but should have been charged to the Machinery account; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%. Based on the above and the result of your audit, answer the following: 14. What is the total effect of the errors on the 2014 net income? a. Understated by 251, 000 c. Understated by 213, 400 d. Overstated by 253. 800 h. Overstated by 216 200 205, 200 520, 000 142, 000 374,000 348,000
Problem 5. You were engaged by Kuting Corp. to audit its financial Statements for the first time. In examining the company's books, you discovered that certain adjustments had been overlooked at the end of 2013 and 2014. Moreover, you also discovered that other Items had been erroneously recorded. The said omissions and other failures for each year are noted below: 2014 2013 256, 000 582, 400 172, 800 313, 600 376,000 Prepaid Insurance Accrued salaries and wages Accrued interest income Advances from customers Capital expenditures charged as repairs expense Audit notes: a. Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year. b. Capital expenditures had been recorded as repairs but should have been charged to the Machinery account; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%. Based on the above and the result of your audit, answer the following: 14. What is the total effect of the errors on the 2014 net income? a. Understated by 251, 000 c. Understated by 213, 400 d. Overstated by 253. 800 h. Overstated by 216 200 205, 200 520, 000 142, 000 374,000 348,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 5. You were engaged by Kuting Corp. to audit its financial Statements for the first
time. In examining the company's books, you discovered that certain adjustments had been
overlooked at the end of 2013 and 2014. Moreover, you also discovered that other Items had
been erroneously recorded. The said omissions and other failures for each year are noted below:
2014
205, 200
2013
256, 000
582, 400
172,
800
313, 600
376, 000
Prepaid Insurance
Accrued salaries and wages
Accrued interest income
Advances from customers
Capital expenditures charged as repairs expense
Audit notes:
a. Collections from customers had been recorded as sales but should have been recognized
as advances from customers because goods were not shipped until the following year.
b. Capital expenditures had been recorded as repairs but should have been charged to the
Machinery account; the depreciation rate is 10% per year, but depreciation in the year of
expenditure is to be recognized at 5%.
Based on the above and the result of your audit, answer the following:
14. What is the total effect of the errors on the 2014 net income?
a. Understated by 251, 000
b. Overstated by 216, 200
15. What is the total effect of the errors on the company's working capital as of December 31,
2014?
a. Understated by 103, 400
b. Overstated by 620, 600
c. Understated by 213, 400
d. Overstated by 253, 800
520, 000
142, 000
374, 000
348,000
a. Understated by 202, 200
c. Understated by 177, 200
d. Overstated by 546, 800
b. Overstated by 76, 600
16. If remained unadjusted, what will be the effect of the errors to the company's December 31,
2014 accumulated profits?
c. Understated by 177, 200
d. Overstated by 570, 600
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