Reference no: EM132766930
Question - Use the following data in answering questions 1 through 5:
Net income for Escudo Company for the years 2019 and 2020 is shown below. An audit of the accounts, however, disclosed the following information:
2019 2020
Net income after tax P24,650 P31,250
Inventory understatement at year-end 2,500
Typewriter purchased at year-end charged to expense (10-year life) 4,000
Merchandise purchased on account not recorded as liability but included in the inventory (5,000)
Unearned rent received taken up as income (1,800)
Accrued taxes unrecorded (3,000)
Q1. The correct net income for 2019 is
a. P23,650 b. P24,250 c. P28,250 d. P33,250
Q2. The correct net income for 2020 is
a. P33,550 b. P28,250 c. P25,350 d. P23,550
Q3. What is the effect of the above errors to the 2020 beginning retained earnings?
a. P1,400 overstated
b. P4,000 understated
c. P3,600 understated
d. P1,000 overstated
Q4. What is the effect of the above errors to 2020 working capital?
a. P2,300 understated
b. P2,300 overstated
c. P4,800 understated
d. P4,800 overstated
Q5. What is the effect of the 2019 errors to 2020 net income?
a. P400 overstatement
b. P400 understatement
c. P4,600 overstatement
d. P4,600 understatement
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