Reference no: EM132923122

Question - The JP Company showed pre-tax income of P2,500,000 for the year ended December 31, 2020. On your year-end verification of the transactions of the company, you discovered the following errors:

P1,000,000 worth of merchandise was purchased in 2020 and included in the ending inventory. However, the purchase was recorded only in 2021.

A merchandise shipment at P1,500,000 was properly recorded as purchases at year end. The merchandise was inadvertently omitted from the physical count, since it has not arrived by December 31, 2020.

Value added tax for the fourth quarter of 2020, amounting to P500,000, was included to the Sales account.

Rental of P300,000 on an equipment, applicable for six months, was received on November 1, 2020. The entire amount was reported as revenue upon receipt.

Rent paid on building covering the period from July 1, 2020 to July 1, 2021, amounting to P1,200,000, was paid and recorded as expense on July 1, 2020. The company did not make any adjustment at the end of the year.

1. The corrected pre-tax profit for 2020 should be

a. P2,400,000

b. P2,900,000

c. P3,000,000

d. P3,400,000

2. What is the net effect of the foregoing errors on the total assets at December 31, 2020?

a. P600,000 understated

b. P1,100,000 understated

c. P1,500,000 understated

d. P2,100,000 understated

3. What is the total understatement of the total liabilities at December 31, 2020?

a. P3,200,00.00

b. P1,700,00.00

c. P1,500,00.00

d. P1,200,000.00