Reference no: EM133170844
Question - You are the accountant of Yoimiya Corporation, and a large expansion project is being negotiated by the management. In view of this, a financial report would be necessary related to a loan arrangement.
You immediately ask your junior accountants to prepare the necessary reports. At the end of 2021, your junior accountants prepared the following condensed financial statements:
Income statement:
Sales and service revenue P800,000
Cost of sales (350,000)
Gross profit 450,000
Expenses:
Selling expenses 120,000
Administrative expenses 60,000 (180,000)
Net Income P270,000
Balance sheet:
Assets:
Cash P23,450
Accounts receivable - net 42,600
Inventory 110,000
Property, plant & equipment - net 460,000
Patent 80,000
Other assets 94,200
Total Assets P810,250
Liabilities:
Accounts payable P80,350
Income tax payable 85,100
Notes payable, long-term (8%) 240,000
P405,450
Shareholders' Equity
Ordinary share, P10 par 145,000
Retained earnings 259,800
404,800
Total Liabilities and Shareholders' Equity P 810,250
The records of Yoimiya Corporation have never been audited. The company is negotiating a large loan for expansion purposes. The bank has requested that an audit of the company be performed. During the course of the audit, the following facts were determined:
The inventory on December 31, 2020, was overstated by P11,000.
The inventory on December 31, 2021, was understated by P25,000.
Total PPE was underdepreciated by P 9,000 in 2020 and in 2021 by P12,000.
A three-year insurance premium of P 1,800 paid on January 1, 2020, was debited in full to Administrative Expense at that time.
Accrued wages (an element of Administrative Expense) were not recorded as follows: 2020, P900; and 2021, P1,500.
The patent, which originally cost P 17,000, is being amortized to Administrative Expense over a 17-year life. Evidence clearly indicates that its economic life will approximate 14 years from date of acquisition.
Service revenues earned but not yet collected were not recognized when earned as follows: 2020, P 4,000; and 2021, P 6,500. Revenue is recognized when collection is made.
A delivery truck purchased in January 2021, at a cost of P 22,000, was debited to Selling expenses at that time. The truck has an estimated useful life of 10 years and an estimated residual value of P 2,000. The company uses straight-line depreciation method.
Allowance for doubtful accounts in 2020 was understated by P7,500.
Required - As the senior accountant, your duty now is to act on the findings of the auditor, prepare necessary adjustments and prepare corrected financial statements using the information presented.
1. Prepare the correcting entries in 2021.
2. Prepare the corrected balance sheet in 2021.
3. Prepare the corrected income statement in 2021.