You were first appointed auditor of the RST Corporation in 2020. You completed the audit for 2020 and prepared audited financial statements directly from the audit working papers. You have returned to make the 2021 audit and discovered that the client's bookkeeper failed to record the adjusting entries you made in 2020 audit working papers, which entailed adjustments for the following items The December 31, 2020 inventory was understated by P5,000. No entry was made for accrued utilities expense of P2,500 as of year-end. Ordinary motor repairs of P3,200 were charged to Accumulated Depreciation during 2020. The company failed to record the provision for uncollectible accounts in the amount of P6,000. Your examination of the 2021 entries in the accounts uncovered the following: An expenditure of P10,000 for repairs of office equipment had been charged to furniture and Equipment. The company records depreciation at 10% of the December 31 balance of the Property and Equipment accounts. A 2020 account receivable in the amount of P14,000 had been written off as uncollectible by a charge to Retained Earnings. Salesmen’s commission includes P2.400 paid on undelivered customers ‘orders. Additional data: The audited statement of 2020 showed a net income of P250,000 and the unadjusted net income for 2021 is P230,000. Requirements: By how much would the December 31, 2021, retained earnings be misstated if no adjustments were made for the above errors? Compute for the adjusted net income for the year 2021.

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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You were first appointed auditor of the RST Corporation in 2020. You completed the audit for 2020 and prepared audited financial statements directly from the audit working papers. You have returned to make the 2021 audit and discovered that the client's bookkeeper failed to record the adjusting entries you made in 2020 audit working papers, which entailed adjustments for the following items

The December 31, 2020 inventory was understated by P5,000.
No entry was made for accrued utilities expense of P2,500 as of year-end.
Ordinary motor repairs of P3,200 were charged to Accumulated Depreciation during 2020.
The company failed to record the provision for uncollectible accounts in the amount of P6,000.

Your examination of the 2021 entries in the accounts uncovered the following:

An expenditure of P10,000 for repairs of office equipment had been charged to furniture and Equipment. The company records depreciation at 10% of the December 31 balance of the Property and Equipment accounts.
A 2020 account receivable in the amount of P14,000 had been written off as uncollectible by a charge to Retained Earnings.
Salesmen’s commission includes P2.400 paid on undelivered customers ‘orders.

Additional data: The audited statement of 2020 showed a net income of P250,000 and the unadjusted net income for 2021 is P230,000.

Requirements:

By how much would the December 31, 2021, retained earnings be misstated if no adjustments were made for the above errors?
Compute for the adjusted net income for the year 2021.

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