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CHAPTER 8 ERRORS AND THEIR CORRECTIONS 44 PROBLEMS 8-1. 2015 profit 2016 profit

CHAPTER 8 ERRORS AND THEIR CORRECTIONS 44 PROBLEMS 8-1. 2015 profit 2016 profit a. Understated Overstated b. Overstated Understated c. Overstated Understated d. No effect No effect e. Understated Overstated f. Understated (gross profit) Overstated (gross profit) g. No effect No effect h. Overstated No effect i. No effect No effect j. Overstated Understated k. Overstated Understated l. Understated Overstated m. Overstated Understated 8-2. (JOY COMPANY) Understatement (overstatement) 2016 Profit 12/31/16 Working Capital 12/31/16 Retained Earnings Understatement of 12/31/15 inventory (148,000) -- -- Overstatement of 12/31/16 inventory (140,500) (140,500) (140,500) Understatement of 2015 depreciation expense -- -- (11,500) 3-year ins. premium charged to expense in 2015 (120,000) 120,000 120,000 Unrecorded sale of fully depreciated machine in 2016 75,000 75,000 75,000 Net understatement (overstatement) P(333,500) P54,500 P43,000 8-3. (TOY COMPANY) 2015 2016 Reported profit P295,000 P210,000 Overstatement of 2015 ending inventory ( 36,000) 36,000 Understated 2015 accrued expenses ( 40,000) 40,000 Unrecognized supplies inventory, end of 2016 _ - 15,000 Corrected profit P219,000 P301,,000 8-4. (BOY, INC.) Effect on 12/31/16 Retained Earnings Understated (Overstated) Understated 2015 ending inventory 0 Overstated 2015 depreciation expense 12,500 Understated 2016 ending inventory 5,000 Understated 2016 depreciation expense ( 4,000) Net understatement in retained earnings P13,500 8-5. (COY COMPANY) (a) a. Prepaid insurance 9,300 Operating expenses 3,100 Retained earnings 12,400 b. Retained Earnings 16,750 Financial assets at FVPL 16,750 Financial assets at FVPL 24,250 Unrealized Gains on FVPL 24,250 202,500 – 178,250 = 24,250 Chapter 8 – Errors and their Corrections 45 c. Operating Expenses 5,500 Allowance for Bad Debts 5,500 98,000 – 92,500 = 5,500 d. Retained earnings 37,750 Cost of goods sold 37,750 Cost of goods sold 49,500 Inventory 49,500 e. Machinery 75,000 Operating expenses 6,250 Retained earnings 68,750 Accumulated depreciation 12,500 (b) 2015 2016 Reported profit P487,500 P550,000 Adjustments: a. 12,400 ( 3,100) b. (16,750 24,250 c. (5,500) d. (37,750) 37,750 (49,500) e. 68,750 ( 6,250) Corrected profit P514,150 P547,650 8-6. (SOY COMPANY) 2015 2016 Reported profit P145,000 P185,000 (a)Rent income of 2016 recorded in 2015 (6,500) 6,500 (b)Omission of unused supplies End of 2014 (6,500) End of 2015 3,700 (3,700) End of 2016 7,100 (c) Omission of accrued salaries End of 2014 5,500 End of 2015 (7,500) 7,500 End of 2016 (d) Commissions earned but not yet collected End of 2014 End of 2015 End of 2016 (12,000) 9,000 (4,700) (9,000) 15,000 Corrected profit P130,700 P203,700 8-7. (FELLOW COMPANY) a. Equipment 120,000 Operating expenses 120,000 b. Profit from self-construction 500,000 Warehouse 500,000 c. Operating expenses 100,000 Accumulated depreciation 100,000 1.2M – (60,000 x 5 yrs) =900,000 900,000/(14-5) = 100,000 d. Operating expenses 20,000 Accumulated depreciation 130,000 Gain on sale of machine 30,000 Machine 120,000 Chapter 8 – Errors and their Corrections 46 8-8. (DOY CORPORATION) Inventory Accounts Payable Net Sales Initial amounts P1,750,000 P1,200,000 P8,500,000 Adjustments: 1. - - (35,000) 2. 50,000 50,000 - 3. 20,000 - - 4. 26,000 - (40,000) 5. 25,000 - - 6. 30,000 - - 7. - 60,000 - 8. 2,000 4,000 - Adjusted amounts P1,903,000 P1,314,000 P8,425,000 8-9. (SOY COMPANY) (a) 2014 2015 2016 Reported profit (loss) P490,000 P670,000 P(320,000) a. Failure to record accrued expenses 2014 (34,000) 34,000 2015 (28,000) 28,000 2016 (43,000) b. Overstated ending inventories 2014 (63,000) 63,000 2015 (28,000) 28,000 2016 (43,000 c. Failure to record accrued interest revenue 2014 12,000 (12,000) 2015 6,000 (6,000) 2016 8,000 d. Failure to recognize unearned rent 2014 (24,000) 24,000 2015 (20,000) 20,000 2016 (18,000) e. Failure to record purchases on account 2015 (25,000) 25,000 2016 (20,000) f. Repairs expense erroneously capitalized 2015 (120,000 – 12,000) (108,000) 2016 (80,000 – 8,000) (72,000) g. Failure to recognize prepaid insurance 2014 4,800 (4,800) 2015 6,200 (6,200) 2016 ________ ________ 7,800 Correct profit P385,800 P577,400 P(411,400) (b) Correcting entries a. Retained earnings 28,000 Expenses 15,000 Accrued expenses 43,000 b. Retained earnings 28,000 Cost of goods sold 15,000 Inventory 43,000 c. Interest receivable 8,000 Retained earnings 6,000 Interest revenue 2,000 d. Retained earnings 20,000 Rent revenue 2,000 Unearned rent 18,000 Chapter 8 – Errors and their Corrections 47 e. Retained earnings 25,000 Accounts payable 20,000 Cost of goods sold 5,000 f. Retained earnings 108,000 Accumulated depreciation 20,000 Expenses 72,000 Property, plant and equipment 200,000 g. Prepaid insurance 7,800 Retained earnings 6,200 Expenses 1,600 MULTIPLE CHOICE QUESTIONS MC1 B MC2 C MC3 B MC4 A MC5 A MC6 A MC7 B 200,000/5 = 40,000 MC8 A 30,000 over + 27,000 over + 7,500 over – 48,000 under = 16,500 net overstatement. MC9 A 27,000 over – 7,500 under – 48,000 under = 28,500 net understatement. MC10 C 27,000 over + 6,000 over – 48,000 under – 7,500 under = 22,500 net understatement. MC11 A 250,000 – 100,000 + 150,000 – 50,000 – (30,000 x 4/6) + (120,000 x 18/24 = 320,000 MC12 A 1,550,000 + 10,000 – 80,000 + 120,000 – 55,000 – 100,000 = 1,445,000 MC13 D 312,500 + 25,000 - 4,000 – 50,000 – 18,000 – 30,000 = 235,500 MC14 A 10,000 – 8,000 = 2,000 net understated MC15 D 10,000 + 25,000 – 8,000 = 27,000 net understated MC16 C MC17 C 2012 profit : 8,000 overstated – 2,000 understated ; 2013 profit 8,000 understated – 2,000 overstated. MC18 B 2,300,000 + 60,000 – 40,000 – 50,000 + 100,000 = 2,370,000 MC19 B 10,000 – 7,700 = 2,300 MC20 D 258,000 – 7,700 = 250,300 MC21 B 589,500 – 112,500 – 16,000 = 461,000 MC22 C MC23 D 613,400 + 90,000 + 12,000 – 28,000 = 687,400 MC24 A 20,000 + 13,500 – 8,000 = 25,500 MC25 A The shares are treasury shares and not investment in shares MC26 A MC27 D MC28 D MC29 A MC30 A 300,00 – 80,000 = 220,000 MC31 A 60,000 – 4,000 – 12,000 = 44,000 MC32 C 434,900 + 12,000 = 446,900 MC33 D 60,000 + 15,000 = 75,000 MC34 C 1,500,000 X 12% x 10/12 = 150,000 MC35 C MC36 D MC37 D MC38 D Retained earnings beginning of 430,000 as reported – correction of prior period errors of P20,500 ( - 36,000 + 31,500 – 16,000) + 2011 corrected profit of 298,800 MC39 D MC40 D 2,500,000 – 112,500 – 50,000 – 80,000 = 2,257,500 Chapter 8 – Errors and their Corrections 48 MC41 B 1,300,000 – 90,000 – 36,000 + 28,000 = 1,202,000 MC42 C 500,000 + 7,700 + 30,000 + 18,000 + 8,000 – 4,000 – 16,000 + 15,000 = 558,700 MC43 A 80,000 + 18,000 + Accrued interest of 150,000 * ( although finance costs should be presented separately, as required by PAS 1, total interest cost included in other losses and expenses is 190,000); thus, other losses and expenses = 248,000 – 190,000 = 58,000 MC44 B 30,000 – 4,000 = 26,000 MC45 A 20,000 + 31,500 = 51,500 MC46 D 75,000 + 16,000 = 91,000 MC47 B 430,000 – 36,000 + 31,500 – 16,000 = 409,500 MC48 A 950,000 + 36,000 = 986,000 MC49 C 450,000 – 31,500 + 16,000 = 434,500 Correcting entries in 2016 for Take One Corporation (MC 17 – 47) Operating Expenses 7,700 Cash 7,700 Sales 112,500 Accounts receivable 112,500 Inventories 90,000 Cost of Sales 90,000 Allowance for Bad Debts 16,000 Accounts Receivable 16,000 Operating Expenses 30,000 Allowance for Bad Debts 30,000 Inventories 12,000 Accounts Payable 12,000 Retained Earnings 36,000 Cost of Sales 36,000 Cost of Sales 28,000 Inventories 28,000 Treasury Stock 260,000 Investments in Stock 260,000 Operating Expenses 18,000 Prepaid Expenses 13,500 Retained Earnings 31,500 Operating Expenses 8,000 Prepaid Expenses 8,000 Accumulated Depreciation – Equipment 4,000 Operating Expenses 4,000 Sales 50,000 Accumulated Depreciation – Equipment 12,000 Loss on Sale of Equipment 18,000 Equipment 80,000 Interest Expense (Other Losses and Expenses) 150,000 Interest Payable 150,000 Chapter 8 – Errors and their Corrections 49 Mortgage Payable 500,000 Current Portion of Mortgage Payable 500,000 Retained Earnings 16,000 Operating Expenses 16,000 Operating Expenses 15,000 Accrued Expenses 15,000 Sales 80,000 Advances from Customers 80,000 Working Paper adjustments to restate 2015 financial statements Cost of Sales 36,500 Inventory 36,500 Prepaid expenses 31,500 Operating Expenses 31,500 Operating Expenses 16,000 Accrued Expenses 16,000 Mortgage Payable 500,000 Current Portion of Mortgage Payable 500,000 uploads/Finance/ 2016-vol-3-ch-8-ans.pdf