PROBLEM 6-5 Comprehensive You have been asked by a client to audit the financial statements of Half-Hearted Company for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 2020 2021 Merchandise inventory, end P10,000 P8,000 understated overstated Advances to supplier were recorded purchases but the merchandise was received in the following year: Advances from customers recorded as sales but the goods were delivered in the following year: Improvements on building had been charged to expense on January 1, 2020. Improvements have a life of 5 years. On January 1, 2020, an equipment costing P40,000 was sold for P20,000. At the date of sale, the equipment had an accumulated depreciation of P15,000. The cash received was recorded as as 30,000 40,000 20,000 70,000 100,000 other income in 2020. Questions: Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2020 net income? Understated by P45,000 b. Understated by P25,000 c. Overstated by P115,000 d. Understated by P55,000 a. 2. What is the total effect of the errors on the 2021 net income? c. Overstated by P68,000 d. Overstated by P38,000 Overstated by P32,000 b. Overstated by P42,000 a. 3. What is the total effect of the errors on the company's working capital on December 31, 2021? a. Overstated by P22,000 b. Understated by P48,000 c. Overstated by P70,000 d. Overstated by P30,000
PROBLEM 6-5 Comprehensive You have been asked by a client to audit the financial statements of Half-Hearted Company for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 2020 2021 Merchandise inventory, end P10,000 P8,000 understated overstated Advances to supplier were recorded purchases but the merchandise was received in the following year: Advances from customers recorded as sales but the goods were delivered in the following year: Improvements on building had been charged to expense on January 1, 2020. Improvements have a life of 5 years. On January 1, 2020, an equipment costing P40,000 was sold for P20,000. At the date of sale, the equipment had an accumulated depreciation of P15,000. The cash received was recorded as as 30,000 40,000 20,000 70,000 100,000 other income in 2020. Questions: Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2020 net income? Understated by P45,000 b. Understated by P25,000 c. Overstated by P115,000 d. Understated by P55,000 a. 2. What is the total effect of the errors on the 2021 net income? c. Overstated by P68,000 d. Overstated by P38,000 Overstated by P32,000 b. Overstated by P42,000 a. 3. What is the total effect of the errors on the company's working capital on December 31, 2021? a. Overstated by P22,000 b. Understated by P48,000 c. Overstated by P70,000 d. Overstated by P30,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:PROBLEM 6-5 Comprehensive
You have been asked by a client to audit the financial statements of Half-Hearted
Company for the first time. In examining the books, you found out that certain
adjustments had been overlooked at the end of 2020 and 2021. You also
discovered that other items had been improperly recorded. These omissions and
other failures for each year are summarized below:
2020
2021
Merchandise inventory, end
P10,000
overstated
P8,000
understated
Advances to supplier were recorded as
purchases but the merchandise was received in
the following year:
Advances from customers recorded as sales but
the goods were delivered in the following year:
Improvements on building had been charged to
expense on January 1, 2020. Improvements have 100,000
a life of 5 years.
On January 1, 2020, an equipment costing
P40,000 was sold for P20,000. At the date of sale,
the equipment had an accumulated depreciation
of P15,000. The cash received was recorded as
30,000
40,000
20,000
70,000
other income in 2020.
Questions:
Based on the above and the result of your audit, answer the following:
1. What is the total effect of the errors on the 2020 net income?
c. Overstated by P115,000
d. Understated by P55,000
Understated by P45,000
b. Understated by P25,000
a.
2. What is the total effect of the errors on the 2021 net income?
a. Overstated by P32,000
b. Overstated by P42,000
c. Overstated by P68,000
d. Overstated by P38,000
3. What is the total effect of the errors on the company's working capital on
December 31, 2021?
Overstated by P22,000
b. Understated by P48,000
c. Overstated by P70,000
d. Overstated by P30,000
a.
129
Transcribed Image Text:Chapter 6 Correction of Errors
210
4. What is the total effect of the errors on the balance of the company's
retained earnings on December 31, 2021?
Understated by P13,000
b. Understated by P17,000
c. Overstated by P183,000
d. Overstated by P33,000
a.
5. Necessary adjusting journal entries on December 31, 2021 would require a
000,S9
c. Credit to Purchases P20,000
d. Debit to Equipment P40,000
net
Credit to R/E P45,000
b. Credit to Sales P50,000
a.
19.3/0/
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