Problem Solving - Comprehensive (Notes to the Financial Statement)

Luna Co.'s profits before correction of errors were P160,000, P190,000, and P250,000 in 20x6, 20x7, 20x8, respectively.

Luna Co. made the ff. errors:

a.December 31, 20x6 inventory was overstated by P30,000.

b.December 31, 20x7 inventory was understated by P45,000.

c.December 31, 20x6 prepaid insurance was overstated by P10,000.

d.December 31, 20x6 unearned rent income was overstated by P28,000.

e.December 31, 20x7 interest receivable was understated by P15,000.

f.December 31, 20x7 accrued salaries payable was understated by P35,000.

g.Repairs and maintenance expenses in 20x6 amounting to P120,000 were erroneously capitalized and being depreciated over period of 4 years.

h.Delivery truck with an acquisition cost of P100,00 was erroneously charged as expense. The delivery truck has useful life of 5 years. Luna Co. provides a full year's straight line depreciation in the year of acquisition and none in the year of disposal.

i.A fully depreciated equipment with no residual value was sold in 20x8 for P60,000 but the sale was recorded in the following year.

The unadjusted balances of retained earnings were P1,160,000, P1,320,000, P1,600,000 in 20x6, 20x7, and 20x8 respectively.

Requirements: Ignoring income taxes, compute for the ff.

1.The net effect of the errors on the ff:

a.20x6, 20x7, 20x8 profit

b.20x6, 20x7, 20x8 year-end retained earnings

c.20x6, 20x7, 20x8 year-end working capital

2.How much are the correct profits in 20x6, 20x7, 20x8 respectively?

3.How much are the correct retained earnings in 20x6, 20x7, 20x8.

Provide explanation and solutions