A-1. What is the NET EFFECT of the errors in PERFECT’s 2020 net income? (After your numerical figure, immediately write OVER if overstated or UNDER if understated, example: XXX-OVER or XXX-UNDER).A-2. What is the NET EFFECT of the errors in PERFECT’s 2021 net income?(After your numerical figure, immediately write OVER if overstated or UNDER if understated, example: XXX-OVER or XXX-UNDER). REQUIREMENTS:A. What is the NET EFFECT of the errors in PERFECT's2020 net income1.2. 2021 net income3. Jan1, 2022 retained earningsB. After considering the above errors, what should be the net income that should be shown for itscomparative financial statements ending:1. 20202. 2021C. What ADJUSTING ENTRIES should be recommended in case:The books of 2021 are still openThe books of 2021 are already closed, and the audit was done within the year 20221.2. While examining the accounts of PERFECT Company on December 31, 2021, the following wereuncovered:1. Office supplies on hand amounting to P16,000 and P25,000 were not recognized at the end of 2020and 2021, respectively.2. Major improvements in buildings for P560,000 had been debited to expense at the end of April2020. Improvements are estimated to have an estimated life of 8 years. PERFECT Company usesthe straight-line method in depreciation its property, plant and equipment and intangibles.Dividends of P150,000 had been declared on December 15, 2021, but was not recorded in the books.3.4. The company failed to record sales commissions payable amounting to P50,500 and P69,000 atthe end of 2020 and 2021, respectively.5. A P100,000 gain on sale of plant assets in 2021 was erroneously credited to Retained Earnings.6.On December 30, 2020, PERFECT Company sold merchandise for P80,000 to a customer. Theterms of the sale were n/15, FOB Shipping Point. The merchandise was shipped on December 31,2020 and arrived at its destination on January 2, 2021. Due to a clerical error, the sale was notrecorded until January 2021 and the merchandise, sold at 25% markup on cost, was included inPERFECT's inventory at December 31, 2020.7. Rent revenue received in advance in 2020 of P250,000 was credited to Rent Income when received.Of the total, P50,000 was earned in 2020, P170,000 was earned in 2021, and the remainder will beearned in 2022.8. Accrued vacation pay for the year 2021 for P126,500 was not recorded because the bookkeeper"never learned that you have to do it"9. Insurance for a 12-month period purchased on November 1, 2021 was charged to expense in theamount of P37,200.The net income reported by PERFECT Company on its CY 2020 and 2021 income statement areP1,236,000 and P1,378,000, respectively.

Introduction Where an income in the income statement is understated/overstated, then the factual…

While examining the accounts of PERFECT Company on December 31, 2021, the following were uncovered: 1. Office supplies on hand amounting to P16,000 and P25,000 were not recognized at the end of 2020 and 2021, respectively. 2. Major improvements in buildings for P560,000 had been debited to expense at the end of April 2020. Improvements are estimated to have an estimated life of 8 years. PERFECT Company uses the straight-line method in depreciation its property, plant and equipment and intangibles. 3. Dividends of P150,000 had been declared on December 15, 2021, but was not recorded in the books. 4. The company failed to record sales commissions payable amounting to P50,500 and P69,000 at the end of 2020 and 2021, respectively. 5. A P100,000 gain on sale of plant assets in 2021 was erroneously credited to Retained Earnings. 6. On December 30, 2020, PERFECT Company sold merchandise for P80,000 to a customer. The terms of the sale were n/15, FOB Shipping Point. The merchandise was shipped on December 31, 2020 and arrived at its destination on January 2, 2021. Due to a clerical error, the sale was not recorded until January 2021 and the merchandise, sold at 25% markup on cost, was included in PERFECT's inventory at December 31, 2020. 7. Rent revenue received in advance in 2020 of P250,000 was credited to Rent Income when received. Of the total, P50,000 was earned in 2020, P170,000 was earned in 2021, and the remainder will be earned in 2022. 8. Accrued vacation pay for the year 2021 for P126,500 was not recorded because the bookkeeper "never learned that you have to do it" 9. Insurance for a 12-month period purchased on November 1, 2021 was charged to expense in the amount of P37,200. The net income reported by PERFECT Company on its CY 2020 and 2021 income statement are P1,236,000 and P1,378,000, respectively.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q