You were engaged by Lanao Company to audit its financial statements for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 259,200 307,800 384,000 Salaries payable Interest receivable Prepaid insurance Advances from customers (Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year) Machinery (Capital expenditures had been recorded as repairs but should have been charged to Machinery; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%) 561,000 470,400 522,000 564,000 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?
You were engaged by Lanao Company to audit its financial statements for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 259,200 307,800 384,000 Salaries payable Interest receivable Prepaid insurance Advances from customers (Collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year) Machinery (Capital expenditures had been recorded as repairs but should have been charged to Machinery; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%) 561,000 470,400 522,000 564,000 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:You were engaged by Lanao Company to audit its financial statements for the first time. In
examining the books, you found out that certain adjustments had been overlooked at the end of
2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and
other failures for each year are summarized below:
12/31/15 12/31/14
P780,000 P873,600
213,000
307,800
Salaries payable
Interest receivable
259,200
384,000
Prepaid insurance
Advances from customers (Collections from customers had been
recorded as sales but should have been recognized as advances from
customers because goods were not shipped until the following year)
Machinery
(Capital expenditures had been recorded as repairs but should have
been charged to Machinery; the depreciation rate is 10% per year, but
depreciation in the year of expenditure is to be recognized at 5%)
561,000
470,400
522,000
564,000
Based on the above and the result of your audit, answer the following:
1. What is the total effect of the errors on the 2014 net income?
2. What is the total effect of the errors on the 2015 net income?
3. What is the total effect of the errors on the company's working capital at December 31,
2015?
4. What is the total effect of the errors on the balance of the company's retained earnings at
December 31, 2015?
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