Reference no: EM132847216
Question 1 - Upon examination and thorough scrutiny of KayaKoToMima Corp. you discovered Recorded Net Income for 2020 and 2021 were 200,000 and 160,000, repectively. Working Capital for 2020 and 2021 were 180,000 and 260,000, respectively and Retained Earnings at year end for 2020 and 2021 were 200,000 and 360,000, respectively, and, the following errors and deficiencies in connection with your examination of its financial statements:
1. Purchase of merchandise on account on December 24, 2020 amounting to 60,000 pesos was not recorded until it was paid in January 2021 the merchandise was properly included in the ending inventory of 2020.
2. Sale of merchandise on account on December 30, 2020 amounting to 80,000 pesos was not recorded until it was collected in January 2021 the merchandise was properly excluded in the ending inventory in 2020.
3. On December 31 2020 the ending inventory was overstated by 20,000 pesos.
Required - Prepare the adjusting journal entries assuming errors were discovered in (1) 2020. (2) 2021 and (3) 2022.
Question 2 - Nini Bonini Brown Fashion House is a manufacturer of high-fashion gowns and formal wears that was started in 2020 by two talented CPAs/Designers. As part of an internal audit the following facts were discovered. The audit occurred during 2021 before any adjusting entries or closing entries were prepared.
A five-year casualty insurance policy was purchased at the beginning of 2020 for 35,000 pesos. The full amount was debited to ensure that expands at the time
On December 31, 2021 merchandise inventory was overstated by 25,000 due to a mistake in the physical inventory count using the periodic inventory system
At the end of 2021 the company failed to accrue 15,500 pesos of sales commissions earned by dressmakers and sewers during 2021. The expense was recorded when the commissions were paid in early 2022.
Bad debts expense is determined each year as 1% of credit sales. Actual collection experience of recent years indicates that 0.75% is a better indication of uncollectible accounts. Management affects the change in 2022. Credit sales for 2022 are 4 million pesos, in 2021 they were 3.7 million pesos.
Additional heavy duty sewing machines were acquired at the beginning of 2020 added to the company's sewing process. The 100,000 pesos cost of the equipment was inadvertently recorded as repairs expense. Heavy duty sewing machines have 10-year useful lives and no material salvage value. This class of equipment is depreciated using straight-line method and not sum of the years digit method.
Required - Prepare the adjusting journal entries for each error discovered.