Reference no: EM133028217
Problem 1 - Casio Company keeps its records under the cash basis of accounting. You were asked to prepare its financial statements under the accrual basis as a requirement of a loan application with a bank. The following information were made available to you:
Total collections from customers P800,000
Total payments to suppliers of merchandise 420,000
Total payments to employees for salaries 200,000
Total payments for rentals 140,000
Total customer returns including a P30,000 cash refund 90,000
Total purchase returns including a P20,000 cash refund 100,000
Recoveries of previously written off accounts 10,000
Audit notes:
a. Outstanding customer invoices were at P150,000 and P225,000 at the beginning and at the end of the year, respectively. P5,000 of the outstanding invoice at the beginning of the year is doubtful of collection while P25,000 is doubtful at the end of the year.
b. Outstanding suppliers' invoices were at P95,000 and P80,000 at the beginning and at the end of the year, respectively.
c. Unsold merchandise inventory were at P55,000 and P85,000 at the beginning and at the end of the year, respectively.
d. Unpaid employee's salaries were at P30,000 and P25,000 at the beginning and at the end of the year, respectively.
e. The unexpired portion of rent at the end of the year was at P25,000.
1. What is the accrual basis gross sales?
a. 955,000 c. 865,000
b. 925,000 d. 965,000
2. What is the accrual basis gross purchases?
a. 505,000 c. 425,000
b. 485,000 d. 405,000
3. What is the accrual basis cost of goods sold?
a. 435,000 c. 355,000
b. 415,000 d. 375,000
4. What is the accrual basis salaries expense?
a. 225,000 c. 195,000
b. 200,000 d. 170,000
5. What is the accrual basis net income?
a. 160,000 c. 150,000
b. 170,000 d. 140,000
Problem 2 - You were engaged for the first time audit of the financial statements of Frank Corp., as of and for the period ended December 31, 2020. The company, which started operations at the beginning of 2018 is in the business of textile distribution. Your examination of the company's books revealed the following:
A. The company reported net income amounting to P568,200, P814,900 and P625,300 for 2018, 2019 and 2020 respectively.
B. The following accruals and deferrals were consistently omitted at the end of each year: 2018 2019 2020
Accrued utilities expense 5,000 9,000 2,000
Prepaid rent expense 2,500 1,200 1,600
Accrued salaries expense 9,000 2,000 1,500
C. The following deliveries were made to customers at each year-end, but were recorded as sales only upon cash collection the following year. All sales were made FOB Shipping Point and the related inventories were excluded from the physical count conducted every December 31:
2018 2019 2020
Sales price 25,000 20,000 34,000
Cost of goods 15,000 12,000 20,400
D. The following goods were received from suppliers as of each year-end, but were recorded as purchases only upon cash payment the following year. All purchases were made FOB Destination and the related inventories were included in the physical count since they were already on hand as of the count date.
2018 2019 2020
Purchase price 25,000 22,000 24,000
E. You discovered that minor repairs done on the company's warehouse costing P112,500 at the beginning of 2019 was charged to the warehouse account and was depreciated over the remaining life of the warehouse which was 9 years.
1. What is the adjusted net income for 2018?
a. 556,700 c. 541,700
b. 561,700 d. 581,700
2. What is the adjusted net income for 2019?
a. 714,600 c. 711,600
b. 709,600 d. 717,600
3. What is the adjusted net income for 2020?
a. 649,300 c. 657,700
b. 659,700 d. 661,300
4. What is the retroactive adjustment to the retained earnings beginning 2020?
a. (123,800) c. (111,800)
b. (89,800) d. (99,300)
5. What is the effect of the errors to the 2020 working capital?
a. 32,100 understated c. 16,200 overstated
b. 8,100 understated d. 12,300 overstated