Charmee Co. established a retail business in 2019. Early in 2022, he requested you to audit his books for the past three years with emphasis on showing the correct profit for each year. Your audit disclosed the following: 2019 541,200 2020 636,300 2021 620,400 129,000 276,000 Profits at year end Omissions from the books: 1. Accrued expenses at the end of the year 2. Accrued income at the end of the year 3. Prepaid expenses at the end of the year 4. Deferred income at the end of the year 5. Goods in transit for which purchase entry had been made 6. Goods in transit for which purchase entry had not been made 129,000 12,000 54,000 60,000 72,000 36,000 216,000 102,000 300,000 Other Items: 7. Depreciation of equipment had been recorded as a charge to expense and a credit to Allowance. for depreciation at 1% of the end of month balances of the Equipment account. An equipment purchased in July 2019 for P360,000 and sold in December 2020 was entered as a debit to Cash and a credit to the Equip. account for the sale price of 8. No allowance had been set up for uncollectible accounts. It was decided to set up one for the estimated probable losses as of December 31, 2021 for: 2020 accounts 2021 accounts and to correct the charge against each year so that it will show the losses (actual and estimated) relating to that year's sales. Accounts had been written off to expenses as follows: 2019 accounts 60,000 2020 accounts 2021 accounts 42,000 90,000 72,000 24,000 120,000 96,000 From the above data, compute for the following: 1. Corrected income for 2019 a.P406,200 b.P418,200 c.P421,800 d.P478,200 2. Corrected income for 2020 a.P517,500 6.P607,500 c.P518,100 d.P734,100 3. Corrected income for 2021 a.P743,400 b.P713,400 c.P318,600 d.P534,600 4. Effect on the cumulative three year's profit of the failure to use the allowance method in the yearly charges for uncollectible accounts: a. Understatement of P132,000 b. Overstatement of P132,000 c. Understatement of P162,000 d. Overstatement of P162,000 5. How much bad debts expense should be recognized for the year 2021? a.P 30,000 b.P216,000 c.P 96,000 d.P186,000 6. Effect on the 2021 profit of the omission of prepaid expenses at the end of 2020 and 2021 when considered together. a. Overstated by P60,000 b. Understated by P60,000 Overstatement of P12,000 d. Understated by P12,000 c. 7. Effect on the 2021 profit of the error in recording sale of asset in 2020. a. Understated by P1,200 b. No Effect c. Understated by P4,800 d. Understated by P6,000 8 Overstatement/Understatement of depreciation expenses in 2020 a. Overstated by P600 b. understated by P600 Overstated by P3,600 d. Understated by P3,600 c. 9. 10. Effect on the 2021 profit of the omission of goods in transit at the end of 2020 and 2021 when considered together. a. Overstated by P318,000 b. Overstated by P114,000 c. Overstated by P102,000 d. Overstatement of P216,000 Effect on the 2021 profit of the omission of deferred income at the end of 2020. a. Understated by P36,000 b. Overstated by P36,000 c. No effect d. Overstated by P72,000 Overstatement/Understatement of depreciation expenses in 2021 a. P Overstated by P7,200 b. P Understated by P7,200 P Overstated by P7,800 d. P Understated by P7,800 11. c
