Activity 2 - Har PDF

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WALKER CORPORATION reported the following amounts of net incomes for the years ended December 31, 2005, 2006, 2007: 2005P381,000 2006 450,000 2007 385,500 You are performing the audit for the year ended December 31, 2007. During your examination, you discovered the following errors: a.As a result of errors in the physical count, ending inventories were misstated as follows: December 31, 2006 P42,000 understated December 31, 2007 69,000 overstated b.On December 29, 2007, Walker recorded as a purchase, merchandise in transit which cost P45,000. The merchandise was shipped FOB Destination and had not arrived by December 31.The merchandise was not included in the ending inventory. c.Walker records sales on the accrual basis but failed to record sales on account made near the end of each years as follows: 2005P12,000 2006 15,000 2007 10,500 d.The company failed to record accrued office salaries as follows: December 31, 2005 P30,000 December 31, 2006 42,000 e.On March 1, 2006, a 10% stock dividend was declared and distributed. The par value of the shares amounted to P30,000 and market value was P39,000. The stock dividend was recorded as follows: Miscellaneous expense 39,000 Ordinary shares 30,000 Accumulated profits 9,000 f.On July 1, 2006 Walker acquired a three-year insurance policy. The three-year premium of P18,000 was paid on that date, and the entire premium was recorded as insurance expense. g.On January 1, 2007, Walker retired bonds with a book value of P360,000 for P318,000. The gain was incorrectly deferred and is being amortized over 10 tears as a reduction of interest expense on other outstanding bonds. Questions: 1.What is the adjusted net income in 2005? a.399,000 b. 351,000

c. 363,000

d. 339,000

2.What is the adjusted net income in 2006? a.477,000 b. 561,000

c. 534,000

d. 537,000

3.What is the adjusted net income in 2007? a.388,800 b. 393,000

c. 313,200

d. 418,800

4.The adjusting entry on December 31, 2006, to correct the error committed in March 1 ,2006 include a debit to: a.Ordinary shares for P30,000 b.Share premium for P9,000 c.Accumulated profits of P39,000 d.Accumulated profits of P48,000

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