Reference no: EM132834132

Questions -

Q1. Mr. Suave 's December 31 year end financial statements had the following errors:

December 31, 2020 December 31, 2021

Ending inventory P13,500 understated P19,800 overstated

Depreciation expense 3,600 understated -

Unearned rental 5,000 understated -

Prepaid insurance - 8,000 understated

There were no other errors during the years 2020 or 2021 and no connections have been made for any of the errors. (ignore income tax considerations).

1. What is the net effect of the errors on Mr. Suave's 2021 net income?

a. understated by P13,000

b. overstated by P14,800

c. overstated by P20,300

d. overstated by P25,300

2. What is the net effect of the errors in Mr. Suave's December 31, 2021 accumulated profits balance?

a. overstated by P11,800

b. overstated by P15,400

c. understated by P20,300

d. overstated by 25,300

3. What is the net effect of the errors in Mr. Suave's December 31,2021 working capital?

a. understated by P4,900

b. understated by P8,000

c. overstated by P11,800

d. understated by P20,300

Q2. Black, Inc. is a calendar-year corporation whose financial statements for 2019 and 2020 included errors as follows:

Year Ending Inventory Depreciation Expense

2019 162,000 overstated 135,000 overstated

2020 54,000 understated 45,000 understated

Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2019, or at December 31, 2020. Ignoring income taxes, by how much should Black's retained earnings be retroactively adjusted at January 1, 2021?

a. 144,000 increase

b. 36,000 increase

c. 18,000 decrease

d. 9,000 increase

Q3. On January 1, 2020, JP Corporation acquired a machine at a cost of P 200,000. It was to be depreciated on a straight-line method over a five-year period with no residual vaue. Because of a bookkeeping error, no depreciation was recorded in JP's 2020 Financial Statements. The oversight was discovered during the preparation of JP's 2021 financial statements. Depreciation expense on this machine in 2021 should be

a. P 0.00

b. P 40,000.00

c. P 50,000.00

d. P 80,000.00