Taal company revealed the following errors in the

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Problem 16-15Taal Company revealed the following errors in the financial statements:December 31, 2018 inventory overstated35,000December 31, 2019 inventory understated10,000Depreciation for 2018 overstated25,000Depreciation for 2019 understated8,000December 31, 2018 prepaid insurance understated5,000December 31, 2019 unearned rent income overstated4,000December 31, 2019 accrued salaries understated20,0001.What is the effect of the errors on net income for 2018?a.10,000 understatedb.10,000 overstated
c.5,000 understatedd.5,000 overstatedAnswer:2018 inventory overstated(35,000)2018 depreciation overstated25,0002018 prepaid insurance understated5,000Net correction of income for 2018( 5,000)
2.What is the effect of the errors on net income for 2019?
3.What is the effect of the errors on retained earnings on December 31, 2019?
4.What is the effect of the errors on working capital on December 31, 2019?
Problem 16-16Malampaya Company showed income before tax of P6,500,000 on December 31, 2019.The year-end verification of the transactions revealed the following errors:P1,000,000 worth of merchandise was purchased in 2019 and included in the endinginventory. However, the purchase was recorded only in 2020.A merchandise shipment valued at P1,500,000 was properly recorded as purchaseat year-end.Since the merchandise was still at the port area, it was inadvertently omitted fromthe inventory on December 31, 2019.Advertising for December 2019, amounting to P500,000, was recorded whenpayment was made in January 2020.Rent of P300,000 on an equipment applicable for six months was received onNovember 1, 2019. The entire amount was reported as income upon receipt.Insurance premium covering the period from July 1, 2019 to July 1, 2020 amount toP200,000 was paid and recorded as expense on July 31, 2019. The entity did notmake any adjustment at the end of the year.What is the corrected income before tax for 2019?a.6,900,000b. 6,400,000c.6,500,000d.6,300,000
Answer:Income per book6,500,000Unrecorded purchase(1,000,000)Understatement of ending inventory1,500,000Unrecorded advertising( 500,000)Unearned rent income (300,000 x 4/6)( 200,000)Prepaid insurance (200,000 6/12)100,000Corrected income6,400,000

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