Spiceland Corporation is in the process of obtaining a loan at City Bank. The bank has requested audited financial statements. Spiceland’s financial statements have never been audited before. It has prepared the following comparative financial statements for the years ended December 31, 2023, and 2022. Spiceland Corporation Comparative Statement of Financial Position For the Years Ended December 31, 2023 and 2022 Current assets: 2023 2022               Cash and cash equivalents 1,205,000 800,000               Accounts receivable 1,960,000 1,480,000               Allowance for bad debts (185,000) (90,000)               Inventory 1,035,000 1,010,000               Total current assets 4,015,000 3,200,000       Noncurrent assets:                   Property, plant and equipment    835,000    847,500               Accumulated depreciation    (608,000)    (532,000)               Total noncurrent assets    227,000    315,500 Total assets 4,242,000 3,200,000       Liabilities:                   Accounts payable    607,000    980,500       Shareholders equity:                        Ordinary, P20 par; 150,000 shares authorized; 65,000 shares issued and outstanding 1,300,000 1,300,000               Retained earnings 2,335,000 1,235,000               Total shareholders’ equity 3,635,000 2,535,000 Total liabilities and shareholders’ equity 4,242,000 3,515,500       Spiceland Corporation Comparative Income Statements For the Years Ended December 31, 2023 and 2022 Sales 5,000,000 4,500,000 Cost of goods sold 2,150,000 1,975,000 Gross income 2,850,000 2,525,000 Operating expenses:                   Selling expenses 1,150,000 1,025,000               Administrative expense    600,000    525,000               Total operating expenses 1,750,000 1,550,000 Net income 1,100,000    975,000   The 2023 audit reveled the following facts: On January 5, 2022, Spiceland Corporation had charged a 5-years insurance premium to expense. The premium totaled P31,000.   The amount of loss due to bad debts had steadily decreased over the last 2 years. Spiceland Corporation has decided to reduce the amount of bad debt expense from 2% to 1.5% of sales, beginning with 2023. (a charge of 2% has already been made for 2023.)   Spiceland Corporation uses the periodic inventory system. The following are the inventory errors for the last 2 years: 2022 –  ending inventory overstated by P75,500. 2023 – ending inventory overstated by P99,000.   An equipment costing P150,000 was acquired on January 3, 2022. The purchase was recorded by a charged to operating expense. The equipment has a useful life of 10 years and a residual value of P25,000. Spiceland Corporation uses the straight line method in depreciating its assets.   Assume that the books for 2023 have not yet been closed. Ignore tax implications.   Questions:  The December 31, 2023, adjusting entry to correct the expensing of insurance premium paid is ?  __________ Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)    Prepaid insurance                        18,600 Insurance expense                          6,200               Retained earnings                         24,800   C. Prepaid expense                            18,600               Retained earnings                         18,600 B. Prepaid insurance                         18,600               Retained earnings                         18,000   D. Insurance expense                        6,200               Retained earnings                         6,200   The December 31, 2023, adjusting entry to correct the expensing of the equipment purchased on January 3, 2023 should include a credit to ?______ Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)   A. Accumulated depreciation – P12,500   C. Equipment – P12,500 B. Retained earnings – P137,500   D. Depreciation expense – P12,500   The December 31, 2023, adjusting entry to correct the inventory errors should include a debit to ? __________ Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)   A. Cost of goods sold – P99,000   C. Retained earnings – P75,500 B. Inventory – P23,500   D. Cost of goods sold – P75,500

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Chapter1: Financial Statements And Business Decisions
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Spiceland Corporation is in the process of obtaining a loan at City Bank. The bank has requested audited financial statements. Spiceland’s financial statements have never been audited before. It has prepared the following comparative financial statements for the years ended December 31, 2023, and 2022.

Spiceland Corporation

Comparative Statement of Financial Position

For the Years Ended December 31, 2023 and 2022

Current assets:

2023

2022

              Cash and cash equivalents

1,205,000

800,000

              Accounts receivable

1,960,000

1,480,000

              Allowance for bad debts

(185,000)

(90,000)

              Inventory

1,035,000

1,010,000

              Total current assets

4,015,000

3,200,000

 

 

 

Noncurrent assets:

 

 

              Property, plant and equipment

   835,000

   847,500

              Accumulated depreciation

   (608,000)

   (532,000)

              Total noncurrent assets

   227,000

   315,500

Total assets

4,242,000

3,200,000

 

 

 

Liabilities:

 

 

              Accounts payable

   607,000

   980,500

 

 

 

Shareholders equity:     

 

 

              Ordinary, P20 par; 150,000 shares authorized; 65,000 shares issued and outstanding

1,300,000

1,300,000

              Retained earnings

2,335,000

1,235,000

              Total shareholders’ equity

3,635,000

2,535,000

Total liabilities and shareholders’ equity

4,242,000

3,515,500

 

 

 

Spiceland Corporation

Comparative Income Statements

For the Years Ended December 31, 2023 and 2022

Sales

5,000,000

4,500,000

Cost of goods sold

2,150,000

1,975,000

Gross income

2,850,000

2,525,000

Operating expenses:

 

 

              Selling expenses

1,150,000

1,025,000

              Administrative expense

   600,000

   525,000

              Total operating expenses

1,750,000

1,550,000

Net income

1,100,000

   975,000

 

The 2023 audit reveled the following facts:

  • On January 5, 2022, Spiceland Corporation had charged a 5-years insurance premium to expense. The premium totaled P31,000.

 

  • The amount of loss due to bad debts had steadily decreased over the last 2 years. Spiceland Corporation has decided to reduce the amount of bad debt expense from 2% to 1.5% of sales, beginning with 2023. (a charge of 2% has already been made for 2023.)

 

  • Spiceland Corporation uses the periodic inventory system. The following are the inventory errors for the last 2 years:

2022 –  ending inventory overstated by P75,500.

2023 – ending inventory overstated by P99,000.

 

  • An equipment costing P150,000 was acquired on January 3, 2022. The purchase was recorded by a charged to operating expense. The equipment has a useful life of 10 years and a residual value of P25,000. Spiceland Corporation uses the straight line method in depreciating its assets.

 

  • Assume that the books for 2023 have not yet been closed. Ignore tax implications.

 

Questions: 

  • The December 31, 2023, adjusting entry to correct the expensing of insurance premium paid is ?  __________

Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)

 

 Prepaid insurance                        18,600

Insurance expense                          6,200

              Retained earnings                         24,800

 

C.

Prepaid expense                            18,600

              Retained earnings                         18,600

B.

Prepaid insurance                         18,600

              Retained earnings                         18,000

 

D.

Insurance expense                        6,200

              Retained earnings                         6,200

 

  • The December 31, 2023, adjusting entry to correct the expensing of the equipment purchased on January 3, 2023 should include a credit to ?______

Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)

 

A.

Accumulated depreciation – P12,500

 

C.

Equipment – P12,500

B.

Retained earnings – P137,500

 

D.

Depreciation expense – P12,500

 

  • The December 31, 2023, adjusting entry to correct the inventory errors should include a debit to ? __________

Note: Kindly input the Capital Letter of correct answer in the blank (e.g. A)

 

A.

Cost of goods sold – P99,000

 

C.

Retained earnings – P75,500

B.

Inventory – P23,500

 

D.

Cost of goods sold – P75,500

 

  • What is Spiceland’s corrected net income for the year ended December 31, 2022?   ________

 

  • What is Spiceland’s corrected net income for the year ended December 31, 2023? _______
 
 
 
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