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: 1. What is Spiceland’s corrected net income for the year ended December 31, 2022?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

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:

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

2. 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Bank reconciliation statement
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education