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
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.
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Spiceland Corporation Comparative For the Years Ended December 31, 2023 and 2022 |
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Current assets: |
2023 |
2022 |
|
Cash and cash equivalents |
1,205,000 |
800,000 |
|
|
1,960,000 |
1,480,000 |
|
Allowance for |
(185,000) |
(90,000) |
|
Inventory |
1,035,000 |
1,010,000 |
|
Total current assets |
4,015,000 |
3,200,000 |
|
|
|
|
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Noncurrent assets: |
|
|
|
Property, plant and equipment |
835,000 |
847,500 |
|
|
(608,000) |
(532,000) |
|
Total noncurrent assets |
227,000 |
315,500 |
|
Total assets |
4,242,000 |
3,200,000 |
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|
|
|
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Liabilities: |
|
|
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Accounts payable |
607,000 |
980,500 |
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|
|
|
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Shareholders equity: |
|
|
|
Ordinary, P20 par; 150,000 shares authorized; 65,000 shares issued and outstanding |
1,300,000 |
1,300,000 |
|
|
2,335,000 |
1,235,000 |
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Total shareholders’ equity |
3,635,000 |
2,535,000 |
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Total liabilities and shareholders’ equity |
4,242,000 |
3,515,500 |
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|
|
|
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Spiceland Corporation Comparative Income Statements For the Years Ended December 31, 2023 and 2022 |
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Sales |
5,000,000 |
4,500,000 |
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Cost of goods sold |
2,150,000 |
1,975,000 |
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Gross income |
2,850,000 |
2,525,000 |
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Operating expenses: |
|
|
|
Selling expenses |
1,150,000 |
1,025,000 |
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Administrative expense |
600,000 |
525,000 |
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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 |
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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 |
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C. |
Equipment – P12,500 |
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B. |
Retained earnings – P137,500 |
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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 |
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B. |
Inventory – P23,500 |
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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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