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• J. CAYETANO ♣♣♣♣• •••• FAR EASTERN UNIVERSITY •••• • ••• FINANCIAL ACCOUNTING II • ••• • ••• PAGE 1 OF 15 • •••A. C.B. D.A. C.B. D.A.B. C. D. Ff ff Use the following information for the next two (2) questions: c Use the following information for the next four (4) questions: Jindo Company reported ...

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A. B.

C. D.

A. B. A .

C. D. B.

C.

D.

1) Ff • ff Use the following information for the next two (2) questions: • c Use the following information for the next four (4) questions: Jindo Company reported profits of P4,000,000 and P8,000,000 in 2021 and 2022, respectively. In 2023, the errors were discovered: • The inventory on December 31, 2021 was understated by P200,000. • An equipment with an acquisition cost of P1,200,000 was erroneously charged as expense in 2021. estimated useful life of 5 years with no residual value. Jindo Company provides full year depreciation in The unadjusted balances of retained earnings are P8,800,000 and P16,800,000 as of December 31, 2021 and 2 1) How much is the correct profit in 2021? A 7,560,000 B. 5,610,000 .

C.

5,160,000

D.

4,7

2) How much is the correct profit in 2022? A 7,560,000 B. 5,720,000 .

C.

5,610,000

D.

5,1

3) How much is the correct retained earnings in 2021? A 18,420,000 B. 17,520,000 .

C.

9,960,000

D.

9,8

4) How much is the correct retained earnings in 2022? A 18,420,000 B. 17,520,000 .

C.

9,960,000

D.

9,8

Use the following information for the next four (4) questions: Lakeland Company reported profits of P1,600,000 and P2,400,000 in 2021 and 2022, respectively. In 20 period errors were discovered: • Prepaid supplies in 2021 were overstated by P80,000. • Accrued salaries payable in 2021 were understated by P160,000. • Repairs and maintenance expenses in 2021 amounting to P400,000 were erroneously capitalized and b period of 4 years. The unadjusted balances of retained earnings are P6,400,000 and P8,800,000 as of December 31, 2021 and 20 5) How much is the correct profit in 2021? A 1,720,000 B. 1,610,000 .

C.

1,060,000

D.

1,0

6) How much is the correct profit in 2022? A 2,740,000 B. 2,704,000 .

C.

2,610,000

D.

2,1

C.

5,520,000

D.

5,4

7) How much is the correct retained earnings in 2021? A 5,860,000 B. 5,806,000

.

1) The following information relates to the Patricia Company: • 2024 cash dividends declared Unadjusted (reported) retained earnings, January 1, 2024 2024 net income Error in 2023, understatement of ending inventory, error found in 2024 Unadjusted (reported) retained earnings, December 31, 2024 What is the restated January 1, 2024, balance of retained earnings? A 1,170,000 B. 1,320,000 C. .

1,470,000

D.

1,6

1) Jags Company has recorded bad debts expense in the past at a rate of 1.5% of net sales. In 2023, Jags estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have be P285,000. In 2023, bad debt expense will be P120,000 instead of P90,000. If Jags tax rate is 35%, w adjusted to the beginning balance of the retained earnings in 2023? A None B. 64,600 C. 95,000 D. 120 . ANSWER: A No adjustment is made on the beginning balance of retained earnings for changes involving estimates. For 2 report a bad debt expense of P120,000. 1) The draft financial statement of Ariana Grande Corporation for the year ended December 31, 2022 have review of the draft reveals an overvaluation of the closing inventory of P200,000 at December 31, 202 shows that there was an overvaluation at December 31, 2020 of P120,000 According to PAS 8 Accounting policies, changes in accounting estimate and errors, what adjustment profit for the year ended December 31, 2021 presented as the comparative figure in the 2022 financial sta C. 80,000 decrease D. 20 A 120,000 decrease B. No change .

1) At December 31, 2014, Samantha Corporation reported current assets of P3,700,000 and current liabili following items may have been recorded incorrectly: • Goods purchased costing P220,000 were shipped FOB shipping point by supplier on Decembe received and recorded the invoice on December 29, but the goods were no included in Samant inventory because they were not received until January 4, 2015. • Goods purchased costing P150,000 were shipped FOB destination by a supplier on December 26, 20 and recorded the invoice on December 31, but the goods were not included in Samantha’s phys because they were not received until January 3, 2015. • Goods held on consignment from Dog Company were included in Samantha’s physical count of inve • Freight in of P30,000 was debited to advertising expense on December 28. This freight relates t December 31. On December 31, 2014, Samantha should report on its statement of financial position current asset respectively, of Current Assets Current Liabilities Current Assets A. 3,820,000 1,850,000 C. 3,790,000 B. 3,820,000 1,720,000 D. 3,670,000

Use the following information for the next five (5) questions: Ochotorena Company made the following errors: • December 31, 2015 inventory was understated by P25,000. • December 31, 2016 inventory was overstated by P40,000. • Purchase on account in 2015 were understated by P100,000. • Advances to suppliers in 2016 totaling P130 000 were inappropriately charged as purchases

• • • • •

• •

December 31, 2016 interest receivable was understated by P17,000. December 31, 2016 accrued salaries payable was understated by P30,000. Advances from customers in 2016 totaling P60,000 were inappropriately recognized as sales but the g 2017. Depreciation expense in 2015 was overstated by P7,200. In 2016, the acquisition cost of a delivery truck amounting to P90,000 was inappropriately charged as truck has a useful life of five years. Ochotorena’s policy is to provide a full year’s straight line depr acquisition and none in the year of disposal. A fully depreciated equipment with no residual value was sold in 2017 for P50,000 but the sale was re year. Profits before correction of errors were P123,000, P156,000, and P210,000 in 2015, 2016, and 2017 earnings before correction of errors were P1,123,000, P1,279,000 and P1,489,000 in 2015, 2016, and 201

1) What is the net (overstatement)/understatement of the errors on the 2015 profit? A (46,800) B. (64,800) C. 153,200 .

D.

3,2

2) What is the corrected retained earnings for the year 2016? A 1,575,200 B. 1,375,200 .

C.

1,425,200

D.

1,3

3) What is the corrected profit for the year 2017? A 315,000 B. 193,000 .

C.

243,000

D.

225

4) What is the corrected retained earnings for the year 2017? A 1,600,200 B. 1,568,200 .

C.

1,650,200

D.

1,6

D.

67,

5) What is the net (overstatement)/understatement of the errors on the 2016 working capital? C. 50,000 A 17,000 B. 77,000 .

1) Jes Company revealed the following data for the year ended December 31, 2020: • Inventory at January 1, 2020 had been overstated by P3,000 • Inventory at December 31, 2020 was understated by P5,000 • An insurance policy covering three years had been purchased on January 2, 2019, for P1,500. T charged as an expense in 2019. During 2020, the entity received a P1,000 cash advance from a customer for merchandise to be man during 2021. The P1,000 had been credited to sales revenue. The gross profit on sales is 50%. Net inc was P20,000. What is the proper net income for 2020? A 26,500 B. 23,500 C. 16,500 D. 20, . 2) During 2017, Ghost Company discovered that the ending inventories reported on its financial statement following amounts: 2015 – P60,000 understated; 2016 – P75,000 overstated. Ghost uses the period ascertain year-end quantities that are converted to peso amounts using the FIFO cost method. By how earnings at January 1, 2017 be misstated prior to any adjustments for these errors and ignoring income ta C. 15,000 overstated D. 15 A 75,000 overstated B. 75,000 understated . 3) Corgi Industries showed profit before income taxes of P250,000 on December 31, 2017 on December 3 end verification of the accounts, you discovered the following: • P100,000 worth of merchandise was purchased in 2017 and included in the ending inventory. How recorded only in 2018. • A merchandise shipment valued at P150,000 was properly recorded as purchase at year-end. Sinc still at port area, they were inadvertently omitted from inventory balance at December 31, 2017. • Rental of P300,000 on an equipment, applicable for six months, was received on November 1, 2017. reported as income upon receipt.

What is the correct profit before income taxes for the year 2017? A 370,000 B. 340,000 C. .

280,000

D.

230

4) Upon inspection of the records of Redbone Company, the following facts were discovered for the yea 2017: • A fire insurance premium of P40,000 was paid and charged as insurance expense in 2017. The fire one year from April 1, 2017. • Inventory on January 1, 2017 was understated by P80,000. • Inventory on December 31, 2017 was understated by P120,000. • Business taxes of P55,000 for fourth quarter of 2017 were paid on January 20, 2018 and charged as e • The profit of Redbone Company for the year ended December 31, 2017 before any adjustments for t P1,550,000. What is the correct profit of Redbone Company for the year ended December 31, 2017? C. 1,485,000 A 1,550,000 B. 1,505,000 .

D.

1,4

5) Profit for Saint Bernard Company for the years 2016 and 2017 is shown below. A review of the accoun the following errors: 2016 Profit 246,500 Inventory understatement at year-end Computer purchased at year-end charged to expense (10-year life) 40,000 Unearned rent received taken into income Accrued taxes unrecorded Merchandise purchased on account recorded as liability but not included in inventory 50,000 The correct profit for 2017 is A 312,500 .

B.

289,500

C.

239,500

D.

235

6) X Company began operations on January 1, 2016. Prior to any adjustments, the retained earnings accoun Date Description Debit Cred January 1, 2016 ---December 31, 2016 Profit for the year 1,200,0 August 31, 2017 Dividends paid 400,000 December 31, 2017 Profit for the year 1,500,0 The company failed to property recognized accruals and prepayments. Selected accounts revealed the fol 2016 20 Prepaid expenses 80,000 60, Accrued expense 25,000 40, Unearned income 110,000 50, Accrued income 70,000 100, What is the adjusted balance of X Company’s retained earnings at December 31, 2017? A 2,570,000 B. 2,385,000 C. 2,370,000 .

D.

2,3

Use the following information for the next four (4) questions: You audit the accounts of Doore Company for the first time in 2024. During the audit you discovered the foll Omission of: 2022 2023 2024 Accrued expense 15,000 7,000 22,000 Accrued income 8,000 9,000 5,000 Prepaid expense 16,000 12,000 6,000 Unearned income 11,000 13,000 10,000 1) What is the understatement (overstatement) for the net income in 2022? A 2,000 over B. 2,000 under C. 3,000 over . 2) What is the understatement (overstatement) for the net income in 2023?

D.

3,0

3) What is the understatement (overstatement) for the net income in 2024? C. 3,000 over A 22,000 under B. 21,000 over .

D.

22

4) What is the understatement (overstatement) for the retained earnings 2024 ending balance? A 22,000 under B. 21,000 over C. 3,000 over .

D.

3,0

PROBLEM 4 You have been engaged to audit the accounts of Drum Company for the first time in 2024. During the au following information. The following were omitted at each year-end: Salaries payable Accrued interest income Unearned rental income Prepaid insurance Collections from customers at year-end, recorded as sales but deliveries were not made until the following year. Payment to suppliers at year end, recorded as purchases but merchandise were not received until the following year. Routinary repairs cost charged to equipment account at the beginning of each year. Depreciation rate on fixed asset was at 20%. Unadjusted net income 5) What is the adjusted net income for 2023? A 157,000 B. 133,000 .

C.

123,000

D.

93,

6) What is the adjusted net income for 2024? A 268,000 B. 204,000 .

C.

205,300

D.

193

D.

64

7) What is the retroactive adjustment to the retained earnings at the beginning of 2024? A 88,000 debit B. 88,000 credit C. 102,000 debit . ANSWER: A, A, A Unadjusted Omission of salaries payable 2023 Omission of salaries payable 2024 Omission of accrued interest income 2023 Omission of accrued interest income 2024 Omission of unearned rental income 2023 Omission of unearned rental income 2024 Omission of prepaid insurance 2023 Omission of prepaid insurance 2024 Overstatement of sales 2023 Overstatement of sales 2024 Overstatement of purchases 2023 Overstatement of purchases 2024 Understatement of repair expense Overstatement of depreciation 2023 (60,000 x 20%) Overstatement of depreciation 2024 (60,000 x 20%) + (80,000 x 20%) Adjusted net income Net income 2023 unadjusted Net income 2023 adjusted Overstatement of net income closed to retained earnings

Use the following information for the next three (3) questions: Moira Company began operations on January 1, 2015. Financial statements for the years 2015 and 2016 c errors: 2015 2016 Ending inventory 700,000 Under 500,000 Over Depreciation 150 000 Under

In addition, on December 31, 2016, a fully depreciated equipment was sold for P100,000 cash but the sale 2017. Ignoring income tax, what is the total effect of the errors on 8) Net income for 2015? A 600,000 under .

B.

550,000 under

C.

600,000 over

D.

550

9) Net income for 2016? A 1,250,000 under .

B.

1,250,000 over

C.

1,150,000 under

D.

1,1

10) Working capital on December 31, 2016? A 500,000 over B. 500,000 under .

C.

400,000 over

D.

400

Use the following information for the next two (2) questions: Income statement prepared by the bookkeeper reported P145,000 net income for 2015 and P185,000 net in review of the records reveals that the following items were handled improperly. • Rent of P6,500 was received from a lessee on December 23, 2015. It was recorded as income at that time pertains to 2016. • Salaries payable on December 31 have been consistently omitted from the records of that date and expenses when paid in the following year. The salary accruals recorded in this manner were: December 31, 2014 5,500 December 31, 2015 7,500 December 31, 2016 4,700 • Invoices for office supplies purchased have been charged to expense accounts when received. Inventorie the end of each year have been ignored, and no entry has been made for them. 11) What is the corrected net income for 2015? A 146,700 B. 144,200 .

C.

139,300

D.

133

12) What is the corrected net income for 2016? A 197,700 B. 190,900 .

C.

185,600

D.

184

Use the following information for the next two (2) questions: Egyptian Mau Company decided on January 2, 2016, to review its accounting practices. This is due conditions and to make its financial statements more comparable to those other companies in its industry. The following will be effective as of January 1, 2016: • Egyptian Mau decided to change its allowance for bad debts from 2% to 4% of its outstanding receiv Mau receivable balance at December 31, 2016, was P690,000. Allowance for bad debts had a debit ba adjustments. • Egyptian Mau decided to use the straight-line method of depreciation on its equipment instead of method. It was also decided that this asset has 10 more years of useful life as of January 2, 2016. The eq on January 1, 2006, at a cost of P1,100,000. On the acquisition date, it was estimated that the equipmen useful life with no residual value. 13) The entry to record the current year provision for bad debts is A. Bad debt expense 29,600 Allowance for bad debt 29,600 B. Allowance for bad debts 29,600 Bad debt expense 29,600

C. D.

Bad debt expense 2 Allowance for bad debt Allowance for bad debt 2 Bad debt expense

14) What is the amount of depreciation on equipment for the current year? A 45,833 B. 32,083 C. 13,750 .

D.

9,1

15) On January 1, 2016, management Exotic Company decided to make a revision in the estimates associa equipment. The equipment was acquired on January 3, 2014, for P800,000 and had been depreciated usin At th d t f i iti it h d ti t d f l lif f 10 ith ti t d l l f

A .

150,000

B.

147,500

C.

125,000

D.

75,

16) On January 1, 2013, Bushwack, Inc. purchased an equipment for P650,000. The machine had an estimat (with no residual value) at the acquisition date. On January 1, 2016, Bushwack determined, as a result of that the equipment had an estimated useful life of 10 years from the acquisition date with no residual va of depreciation expense on the equipment for the year ended December 31, 2016? A 92,850 B. 65,000 C. 58,036 D. 40, . 17) The correct income statement of Calamity Company shows a net income of P175,000 for the year end Adjustments were made for the following errors: • December 31, 2015, inventory overstated by P22,500. • December 31, 2016, inventory understated by P37,500. • A P10,000 customer’s deposit received in December 2016, was credited to sales in 2016. The good in January 2017. What is the unadjusted net income of Calamity Company for the year ended December 31, 2016? C. 170,000 D. A 234,000 B. 225,000 .

125

PROBLEM 3 Havana Brown Company reported the following net income figures without knowledge of inventory errors. Year Reported Net Income Error in Ending Invento 2019 500,000 Overstated 50,000 2020 520,000 Overstated 90,000 2021 540,000 Understated 110,000 2022 560,000 No error 2023 580,000 Understated 20,000 2024 600,000 Overstated 100,000 Questions: Based on the above and the result of your audit, compute the corrected profit for the following ye 18) 2019 A 550,000 B. 450,000 C. 360,000 D. 500 . 19) 2020 A 480,000 .

B.

570,000

C.

560,000

D.

430

20) 2021 A 740,000 .

B.

650,000

C.

630,000

D.

560

21) 2022 A 670,000 .

B.

650,000

C.

470,000

D.

450

22) 2023 A 600,000 .

B.

580,000

C.

560,000

D.

500

23) 2024 A 580,000 .

B.

520,000

C.

500,000

D.

480

ANSWER: B, A, A, D, A, D 2019 Unadjusted 500,000 2019 error (50,000) 2020 error 2021 error 2022 error 2023 error 2024 error Adjusted 450,000

2020 520,000 50,000 (90,000)

2021 540,000

2022 560,000

90,000 110,000

(110,000)

2023 580,000

20,000 480,000

740,000

450,000

600,000

A. An adjustment of the carrying amount of an asset or liability, or related expense, resulting from re future benefits and obligati...