Comprehensive Problem 1

The bookkeeper of CPA Co. reports the following statement of financial position amounts as of June 30, 2019.

Current assets 885,900

Other assets 1,891,800

Current liabilities 502,260

Other liabilities 600,000

Shareholders' equity 1,675,440

A review of the account balances reveals the following:

a) An analysis of current assets discloses the following:

Cash 178,500

Investment securities - trading 120,000

Accounts receivable 204,900

Inventories, including advertising supplies of P10,500 382,500

b) Other assets include the following:

Property, plant, and equipment

Depreciated book value (cost, 2,325,000) 1,663,500

Deposit with a supplier for merchandise ordered for August delivery 32,100

Goodwill recorded on the books to cancel losses incurred by the

company in prior years 196,200

c) Current liabilities include the following:

Salaries payable 60,750

Taxes payable 26,610

Accounts payable

Total owed to supplier on account 333,900

Less: 6-month note received from a supplier

who purchased some used equipment

on June 29, 2019 15,000 318,900

Notes payable 96,000

d) Other liabilities include the following

10% mortgage note on property, plant, and equipment, payable

in semiannual installments of P60,000 through June 30, 2024 600,000

e) Shareholders' equity includes the following:

Preference shares, 45,000 shares issued and outstanding, P20 par value 900,000

Ordinary shares, 525,000 shares issued and outstanding 525,000

Share premium 250,440

f) Ordinary shares were originally issued for P1,485,000 but the losses of the company for the past years were charged against share premium.

Based on the preceding information, compute the June 30, 2019, adjusted balances of the following:

1. Total current assets

A. 918,000

B. 922,500

C. 930,000

D. 933,000

2. Property, plant, and equipment, net of accumulated depreciation

A. 1,662,000

B. 1,663,500

C. 1,891,800

D. 2,325,000

3. Total current liabilities

A. 517,260

B. 549,900

C. 637,260

D. 642,660

4. Total shareholders' equity

A. 1,317,000

B. 1,479,240

C. 1,485,000

D. 2,385,000

5. Total liabilities and shareholders' equity

A. 1,117,260

B. 1,479,240

C. 2,595,000

D. 2,596,500

Comprehensive Problem 2

DOMROX CO. reported the following amounts of net income for the years ended December 31, 2017, 2018 and 2019:

2017 190,500

2018 225,000

2019 192,750

You are performing the audit for the year ended December 31, 2019. During the examination, you discover the following errors:

a) As a result of errors in the physical count, ending inventories were misstated as follows:

December 31, 2018 21,000 understated

December 31, 2019 34,500 overstated

b) On December 29, 2019, DOMROX recorded as a purchase, merchandise in transit which cost P22,500. The merchandise was shipped FOB Destination and had not arrived by December 31. The merchandise was not included in the ending inventory.

c) DOMROX record sales on the accrual basis but failed to record sales on account made near the end of each year as follows:

2017 6,000

2018 7,500

2019 5,250

d) The company failed to record accrued office salaries as follows

December 31, 2017 15,000

December 31, 2018 21,000

e) On March 1, 2018, a 10% share dividend was declared and distributed. The par value of the shares amounted to P!5,000 and market value was P19,500. The share dividend was recorded as follows:

Miscellaneous expense 19,500

Ordinary share capital 15,000

Retained earnings 4,500

f) On July 1, 2018, DOMROX acquired a three-year insurance policy. The three-year premium of P9,000 was paid on that date, and the entire premium was recorded as insurance expense.

g) On January 1, 2019, DOMROX retired bonds with a book value of P180,000 for P159,000. The gain was incorrectly deferred and is being amortized over 10 years as a reduction of interest expense on other outstanding obligations.

Questions:

6. What is the adjusted net income for the year ended December 31, 2017?

a. 169,500

b. 175,500

c. 181,500

d. 199,500

7. What is the adjusted net income for the year ended December 31, 2018?

a. 238,500

b. 267,000

c. 268,500

d. 280,500

8. What is the adjusted net income for the year ended December 31, 2019?

a. 156,600

b. 194,400

c. 196,500

d. 209,400

9. What is the adjusting entry should be made on December 31, 2019, to correct the error described in item B?

Debit Credit

A. Accounts payable - 22,500 Purchases - 22,500

B. Purchases - 22,500 Accounts payable - 22,500

C. Accounts payable - 22,500 Cash - 22,500

D. No adjusting entry is necessary

10. The adjusting entry on December 31, 2018, to correct the error described in item E should include a debit to

a. Ordinary share capital of P15,000

b. Retained earnings of P24,000

c. Share premium of P4,500

d. Miscellaneous expenses of P4,500

Comprehensive Problem 3

You were engaged to prepare the financial statements of Odette Corp. as of and of the year ended December 31, 2019. The following summarizes significant findings on the course of the preparation of the financial statements:

a) The following is an analysis of the company's accumulated profits account:

Date Particulars Debit Credit Balance

12/31/17 2017 Net loss 100,000--- (100,000)

12/31/18 2018 Net Income ----1,200,0001,100,000

1/31/19Payment of dividends600,000 ----500,000

12/31/19 2019 Net Income ----1,450,0001,950,000

b) No dividends were declared in 2017. Dividends declared in December 31, 2018 and 2019 were paid on January 31, 2019 of the following years. The 2019 dividends were P800,000.

c) The following items were omitted at each year-end:

2017 2018 2019

Accrued salaries 50,000 90,000 120,000

Unused supplies 30,000 - 25,000

Unearned rent income- 20,000 40,000

d. An equipment with a cost of P450,000 was fully expensed on September 1, 2017. Based on your discussions with the management, the cost should have been capitalized and depreciated using the straight-line method over its six-year useful life.

Requirements:

11. What is the adjusted net income in 2017?

a. 305,000

b. 311,250

c. 280,000

d. 405,000

12. What is the adjusted net income in 2018?

a. 1,035,000

b. 1,425,000

c. 1,350,000

d. 1,225,000

13. What is the adjusted net income in 2018?

a. 1,035,000

b. 1,425,000

c. 1,350,000

d. 1,225,000

14. What is the retroactive adjustment to the retained earnings balance beginning 2019?

a. 740,000

b. 435,000

c. 360,000

d. 390,000

15. What is the adjusted retained earnings on December 31, 2019?

a. 1,290,000

b. 1,296,000

c. 1,365,000

d. 1,182,500

Comprehensive Problem 4:

Ace Company began operations on January 1, 2017. Financial statements for the years ended December 31, 2017 and 2018 contained the following errors:

2017 2018

Ending inventory 160,000 understated 150,000 overstated

Depreciation expense 60,000 understated -

Insurance expense100,000 overstated 100,000 understated

In addition, on December 31, 2018, fully depreciated machinery was sold for P110,000 cash but the sale was not recorded until 2019. No corrections were made for any fo the errors. Ignore income tax.

16. What is the net effect of the errors on 2018 net income?

a. 300,000 understated

b. 410,000 overstated

c. 100,000 overstated

d. 200,000 understated

17. What is the net effect of the errors on 2017 net income?

a. 300,000 understated

b. 410,000 overstated

c. 100,000 overstated

d. 200,000 understated

18. What is the net effect of the errors on retained earnings on December 31, 2018?

a. 200,000 overstated

b. 300,000 overstated

c. 410,000 understated

d. 100,000 overstated

19. What is the net effect of the errors on working capital on December 31, 2017?

a. 40,000 overstated

b. 60,000 overstated

c. 200,000 overstated

d. 360,000 understated

20. What is the net effect of the errors on working capital on December 31, 2018?

a. 40,000 overstated

b. 60,000 overstated

c. 200,000 overstated

d. 360,000 understated