The Davao Company engaged you in 2021 to examine its books and records and to make whatever adjustments are necessary. Your examination disclosed following: a. Prior to any adjustments, the Retained Earnings account is reproduced below: Retained Earnings Date 2019 Jan. 01 Dec. 31 2020 Jan. 31 Apr. 03 Aug. 30 Dec. 31 2021 Jan. 31 Dec. 31 Balance Profit for the year Dividends paid Paid in capital in excess of par Gain on retirement of preferred stocks at less than issue price Loss for the year Particulars Dividends paid Loss for the year 1. Prepaid expenses 2. Accrued expenses 3. Unearned income 4. Accrued income 2018 Debit 8,500 5,400 6,900 4,700 140,000 205,000 100,000 165,500 2019 6,200 7,300 Credit 7,800 5,600 310,000 b. The company failed to properly recognized accruals and prepayments. Selected accounts revealed the following information: Particulars 90,000 64,500 2020 7,400 8,700 Balance 8,900 6,200 580,000 890,000 750,000 840,000 904,500 699,500 599,500 434,000 2021 9,500 9,000 9,600 7,800 c. Dividends had been declared on December 31 in 2019 and 2020 but had not been entered in the books until paid. d. The company purchased a machine worth P270,000 on April 30, 2018. The company charged the purchase to expense. The machine has an estimated useful life of 3 years. The company uses the straight-line method and residual values are deemed immaterial. e. The company received a transportation equipment as donation from one of its shareholders on September 30, 2020. The equipment was used to deliver goods to customers. The equipment costs P750,000 and has a remaining life of 3 years on the date of donation. The equipment has a fair value of P240,000 and P30,000 was incurred for registering the transfer of ownership. The
The Davao Company engaged you in 2021 to examine its books and records and to make whatever adjustments are necessary. Your examination disclosed following: a. Prior to any adjustments, the Retained Earnings account is reproduced below: Retained Earnings Date 2019 Jan. 01 Dec. 31 2020 Jan. 31 Apr. 03 Aug. 30 Dec. 31 2021 Jan. 31 Dec. 31 Balance Profit for the year Dividends paid Paid in capital in excess of par Gain on retirement of preferred stocks at less than issue price Loss for the year Particulars Dividends paid Loss for the year 1. Prepaid expenses 2. Accrued expenses 3. Unearned income 4. Accrued income 2018 Debit 8,500 5,400 6,900 4,700 140,000 205,000 100,000 165,500 2019 6,200 7,300 Credit 7,800 5,600 310,000 b. The company failed to properly recognized accruals and prepayments. Selected accounts revealed the following information: Particulars 90,000 64,500 2020 7,400 8,700 Balance 8,900 6,200 580,000 890,000 750,000 840,000 904,500 699,500 599,500 434,000 2021 9,500 9,000 9,600 7,800 c. Dividends had been declared on December 31 in 2019 and 2020 but had not been entered in the books until paid. d. The company purchased a machine worth P270,000 on April 30, 2018. The company charged the purchase to expense. The machine has an estimated useful life of 3 years. The company uses the straight-line method and residual values are deemed immaterial. e. The company received a transportation equipment as donation from one of its shareholders on September 30, 2020. The equipment was used to deliver goods to customers. The equipment costs P750,000 and has a remaining life of 3 years on the date of donation. The equipment has a fair value of P240,000 and P30,000 was incurred for registering the transfer of ownership. The
Chapter1: Financial Statements And Business Decisions
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