Q1. Problems
Q1. Problems
In examining the books, you found out that certain adjustments have been overlooked at the end of
2017 and 2018. You also discovered the other items had been improperly recorded. These omissions
and other failure for each year are summarized below:
2017 2018
Merchandise inventory, end P10,000 overstated P8,000 understated
Advances to supplier were recorded as 20,000 40,000
purchases but the merchandise was received in
the following year.
Advances from customers recorded as sales but 20,000 70,000
the goods were delivered in the following year.
Improvements on building had been charged to 100,000
expense on January 1, 2017. Improvements
have a life of five years.
On January 1, 2017, an equipment costing
P40,000 was sold for P20,000. At the date of
sale, the equipment had an accumulated
depreciation of P15,000. The cash received was
recorded as other income in 2017.
Based on the above and the result of your audit, answer the following:
1. What is the total effect of the errors on the 2017 net income?
Understated by 45,000
Understated by 25,000
Overstated by 115,000
Understated by 5,000
2. What is the total effect of the errors on the 2018 net income?
Overstated by 32,000
Overstated by 8,000
Overstated by 68,000
Overstated by 38,000
3. What is the total effect of the errors on the company’s working capital at December 31, 2018?
Overstated by 22,000
Understated by 48,000
Overstated by 70,000
Overstated by 30,000
4. What is the total effect of the errors on the balance of the company’s retained earnings at
December 31, 2018?
Understated by 13,000
Understated by 17,000
Overstated by 183,000
Overstated by 33,000
Questions
Solution
2004 2005 2006
A 9,000
(1,800) (1,800) (1,800)
B
C 112,000 (112,000)
D
E (120,000) 120,000
(120,000)
F ________ 144,000 (72,000)
_
Under/(Over) 7,200 134,200 185,800
Answer:
1. D 2. B 3. B 4. C
Branzuela Corporation reported the following amounts of net income for the years ended December 31, 2018,
2019 and 2020:
2018 P127,000
2019 150,000
2020 128,500
You are performing the audit for the year ended December 31, 2020. During your examination, you discover the
following errors:
a. As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2019 P14,000 understated
b. On December 29, 2020, Branzuela recorded as a purchase, merchandise in transit, which cost P15,000. The
merchandise was shipped FOB Destination and had not arrived by December 31. The merchandise was not
included in the ending inventory.
c. Branzuela records sales on the accrual basis but failed to record sales on account made near the end of
each year as follows
2018 P4,000
2019 5,000
2020 3,500
d. The company failed to record accrued office salaries as follows:
December 31, 2018 P10,000
e. On March 1, 2019, a 10% stock dividend was declared and distributed. The par value of the shares amounted
to P10,000 and market value was P13,000. the stock dividend was recorded as follows:
Miscellaneous expense P13,000
f. On July 1, 2019, Branzuela acquired a three-year insurance policy. The three-year premium of P6,000 was
paid on that date, and the entire premium was recorded as insurance expense.
g. On January 1, 2020, Branzuela retired bonds with a book value of P120,000 for P106,000. The gain was
incorrectly deferred and is being amortized 10 years as a reduction of interest expense on other outstanding
obligations.
Questions:
1. What is the adjusted net income for the year ended December 31, 2018?
P133,000
P121,000
P117,000
P113,000
2. What is the adjusted net income for the year ended December 31, 2019?
P159,000
P160,000
P179,000
P187,000
3. What is the adjusted net income for the year ended December 31, 2020?
P129,600
P131,600
P139,600
P142,600
4. What adjusting entry should be made on December 31, 2020 to correct the error described in
item B?
Dr. Accounts payable 15,000; Cr. Purchases 15,000
Dr. Purchases 15,000; Cr. Accounts payable 15,000
Dr. Accounts payable 15,000; Cr. Cash 15,000
Dr. Accounts payable 15,000; Cr. Retained earnings 15,000
5. The adjusting entry on December 31, 2019 to correct the error described in item E should
include a debit to
Common stock P10,000
Additional paid in capital, P3,000
Retained earnings, P16,000
Miscellaneous expenses, P3,000
Solution
2003 2004 2005
Unadjusted Net 127,000 150,000 128,500
Income
A 14,000 (14,000)
(23,000)
B 15,000
C 4,000 (4,000)
5,000 (5,000)
3,500
D (10,000) 10,000
(14,000) 14,000
E 13,000
F 5,000 (2,000)
G 14,000
___________ ___________ (1,400)
Adjusted Net Income 121,000 179,000 129,600
Answer:
1. B 2. A 3. D 4. A 5. B
2. How much is the total cash paid for income tax in 2018?
470,000
270,000
220,000
420,000
3. How much is the net cash provided by (or used in) operating activities?
1,372,292
1,827,292
1,777,292
517,292
4. How much is the net cash provided by (or used in) investing activities?
(600,000)
(1,189,230)
350,000
544,230
5. How much is the net cash provided by (or used in) financing activities?
370,000
(350,000)
720,000
270,000