Determine the following as a result of your audit:a. How much is the correct total interest income related to notes receivable reported in the 2022 Statement of Comprehensive Income?b. How much is the net understatement (overstatement) of profit reported in the Statement of Comprehensive Income in 2022? You were assigned to audit the notes receivable of Seum Corp. The following are the notesreceivable of the company:Note receivable from sale of land:On July 1, 2021, Seum Corp. sold a tract of land costing P6,000,000 for P10,000,000 to DCCompany. DC Company made a down payment of P2,000,000 and signed a 5-year 10% note forP8,000,000. The note is collectible in equal annual amount starting June 30, 2022 plus interestbased on outstanding balance. The prevailing rate of interest on this date was 8%.The following journal entries were made by the company regarding this note:DateParticularsCreditJuly 1, 2021June 30, 2022CashNotes receivableLandCashDecember 31, 2022December 31, 2023December 31, 2024December 31, 2025Gain on saleNotes receivable from sale of equipment:Debit2,000,0008,000,000To record the sale of land.P2,000,000Notes receivable1,600,000Interest income800,000To record receipt of first installment on notes.1,500,0001,000,000500,0002,400,000On January 1, 2022, Seum Corp. received a 12%, P5,000,000 notes from sale of equipmentcosting P4,500,000 with accumulated depreciation of P1,125,000. This was collectible asfollows:6,000,0004,000,000 The effective interest on January 1, 2022 is at 10% while on December 31, 2022 at 9%. Thefollowing journalentries were made regarding this note:DateJanuary 1, 2022ParticularsDecember 31, 2022Notes receivableAccumulated depreciationEquipmentGain on saleTo record the sale of equipment.CashDebit5,000,0001,125,0002,600,000Notes receivableInterest incomeTo record receipt of first installment on notes.Credit4,500,0001,625,0002,000,000600,000

The questions asked to compute the correct interest income, and, understated or overstated profit…

You were assigned to audit the notes receivable of Seum Corp. The following are the notes receivable of the company: Note receivable from sale of land: On July 1, 2021, Seum Corp. sold a tract of land costing P6,000,000 for P10,000,000 to DC Company. DC Company made a down payment of P2,000,000 and signed a 5-year 10% note for P8,000,000. The note is collectible in equal annual amount starting June 30, 2022 plus interest based on outstanding balance. The prevailing rate of interest on this date was 8%. The following journal entries were made by the company regarding this note: Date Particulars Credit July 1, 2021 Cash Notes receivable Land June 30, 2022 Cash Gain on sale Notes receivable from sale of equipment: Debit 2,000,000 8,000,000 To record the sale of land. P2,000,000 1,500,000 1,000,000 Notes receivable 1,600,000 Interest income 800,000 To record receipt of first installment on notes. 500,000 2,400,000 6,000,000 4,000,000 On January 1, 2022, Seum Corp. received a 12%, P5,000,000 notes from sale of equipment costing P4,500,000 with accumulated depreciation of P1,125,000. This was collectible as follows: December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025

You were assigned to audit the notes receivable of Seum Corp. The following are the notes receivable of the company: Note receivable from sale of land: On July 1, 2021, Seum Corp. sold a tract of land costing P6,000,000 for P10,000,000 to DC Company. DC Company made a down payment of P2,000,000 and signed a 5-year 10% note for P8,000,000. The note is collectible in equal annual amount starting June 30, 2022 plus interest based on outstanding balance. The prevailing rate of interest on this date was 8%. The following journal entries were made by the company regarding this note: Date Particulars Credit July 1, 2021 Cash Notes receivable Land June 30, 2022 Cash Gain on sale Notes receivable from sale of equipment: Debit 2,000,000 8,000,000 To record the sale of land. P2,000,000 1,500,000 1,000,000 Notes receivable 1,600,000 Interest income 800,000 To record receipt of first installment on notes. 500,000 2,400,000 6,000,000 4,000,000 On January 1, 2022, Seum Corp. received a 12%, P5,000,000 notes from sale of equipment costing P4,500,000 with accumulated depreciation of P1,125,000. This was collectible as follows: December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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