EFFECTS OF ERRORS ON PROFIT

DESCRIPTION OF ERROR 2014 2015

a. Understated Overstated
b. Overstated Understated
c. Overstated Understated
d. No effect No effect
e. Understated Overstated
f. Understated Overstated
g. No effect No effect
h. Overstated Understated
i. No effect No effect
j. Overstated Understated
k. Overstated Understated
l. Understated Overstated
m. Overstated Understated
JOY COMPANY

UNDERSTATEMENT (OVERSTATEMEN
PROFIT
Understatement of 12/31/2014 inventory ₱ (148,000.00)
Overstatement of 12/31/2015 inventory ₱ (140,500.00)
Understatement of 12/31/2014 depreciation expense
-
3-year insurance premium charged to expense in 2014
₱ (120,000.00)
Unrecorded sale of machine in 2015 ₱ 75,000.00
Net understatement (overstatement) ₱ (333,500.00)
UNDERSTATEMENT (OVERSTATEMENT) 2015
WORKING CAPITAL RETAINED EARNINGS
- -
₱ (140,500.00) ₱ (140,500.00)

- ₱ (11,500.00)

₱ 120,000.00 ₱ 120,000.00
₱ 75,000.00 ₱ 75,000.00
₱ 54,500.00 ₱ 43,000.00
TOY COMPANY

2014 2015
Reported profit ₱ 295,000.00 ₱ 210,000.00
Inventory overstatement at year-end, 2014
₱ (36,000.00) ₱ 36,000.00
Accrued expenses not recognized at year-end,
2014 ₱ (40,000.00) ₱ 40,000.00
Supplies inventory not recorded ar year-end,
2015 - ₱ 15,000.00
Corrected profit ₱ 219,000.00 ₱ 301,000.00
BOY INC.
Overstated 2014 inventory
Overstated 2014 depreciation expense
Understated 2015 inventory
Understated 2015 depreciation expense
Increase in retained earnings, 12/31/15
EFFECT ON 12/31/15 RETAINED
EARNINGS
UNDERSTATED (OVERSTATEMENT)
-
₱ 12,500.00
₱ 5,000.00
₱ (4,000.00)
₱ 13,500.00
COY COMPANY

DATE DESCRIPTION
2015 CORRECTING ENTRIES
Dec. 31 OPERATING EXPENSE
a PREPAID INSURANCE
RETAINED EARNINGS

b FINANCIAL ASSETS THROUGH PROFIT OR LOSS

RETAINED EARNINGS
UNREALIZED GAIN ON FINANCIAL ASSETS-FVPL

c. OPERATING EXPENSES
ALLOWANCE FOR BAD DEBTS
[(980,000*10%)-92,500]

d. RETAINED EARNINGS
COST OF GOODS SOLD
INVENTORY

e. MACHINE
OPERATING INCOME
ACCUMULATED DEPRECIATION- MACHINE
RETAINED EARNINGS
DEBIT CREDIT
2014
3,100 UNADJUSTED PROFIT 487,500
9,300 ADJUSTMENTS:
12,400 A 12400
B -16750
C -
D -37750
E 68750
7,500 CORRECTED PROFIT 445,400
16,750
24,250

5,500
5,500

37,750
11,750
49,500

75,000
6,250
12,500
68,750
 2,015
550,000

(3,100)
24,250
(5,500)
(11,750)
(6,250)
547,650
SOY COMPANY

2014
UNADJUSTED PROFIT 145,000
ADJUSTMENTS:
RENT REVENUE REVENUE FOR 2015 RECOGNIZED IN 2014 (65,000)
UNRECORDED OFFICE SUPPLIES INVENTORIES AT YEAR-END (6,500)
3,700
UNRECORDED ACCRUED SALARIES AT YEAR-END 5,500
(7,500)
ACCRUED COMMISSIONS (12,000)
9,000
ADJUSTED PROFIT 72,200
2015
185,000

6,500
(3,700)
7,100
7,500
(4,700)
(9,000)
15,000
203,700
FELLOW COMPANY

DATE DESCRIPTION DEBIT CREDIT

2015 CORRECTING ENTRIES
Dec. 31
a EQUIPMENT 120,000
OPERATING INCOME 120,000

b PROFIT FOR SELF-CONSTRUCTION 500,000

WAREHOUSE 500,000

c. DEPRECIATION EXPENSE 20,000

ACCUMULATED DEPRECIATION-MACHINE 20,000

d. CASH 60,000
ACCUMULATED DEPRECIATION-MACHINE 150,000
GAIN ON SALE OF MACHINE 30,000
MACHINE 180,000
DOY CORPORATION

INVENTORY
INITIAL AMOUNTS 1,750,000
ADJUSTMENTS: INCREASE(DECREASE)
1
2 50,000
3 20,000
4 26,000
5 25,000
6 30,000
7
8 2,000
ADJUSTED AMOUNTS 1,903,000
ACCOUNTS PAYABLE NET SALES
1,200,000 8,500,000

(35,000)
50,000

(40,000)

60,000
4,000
1,314,000 8,425,000
(1) Schedule to correct the reported profit
2013
Reported profit (loss) 490,000
Nature of errors:
a. Failed to record accrued expenses. (34,000)

b. Overstated ending inventories. (63,000)

c. Failed to record accrued interest on notes 12,000

receivable.

d. Failed to recognize unearned rent. (24,000)

e. Failed to record purchases on account, purchases

were recorded when paid in the subsequent year,
merchandise properly included in end inventory.
f. Repairs and maintenance incurred during the year
capitalized as part of asset cost. Full year
depreciation at an annual rate of 10% is provided
in the year that the asset is recognized.
g. Failed to recognize prepaid insurance at year end. 4,800

CORRECTED PROFIT 385,800

 2014 2015 DATE
670,000 (320,000) 2014
DEC 31
34,000 a RETAINED EARNINGS
(28,000) 28,000
(43,000)
63,000
(28,000) 28,000 b RETAINED EARNINGS
(36,000)
(12,000)
6,000 (6,000)
8,000 c INTEREST RECEIVABLE
24,000 INTEREST REVENUE
(20,000) 20,000
18,000
d RETAINED EARNINGS
No effect No effect

(120,000) e COST OF SALES

(80,000)

(4,800) f OPERATING EXPENSES

6,200 (6,200) ACCUMULATED DEPRECIATION
7,800
590,400 (381,400)
g PREPAID INSURANCE
 DESCRIPTION DEBIT CREDIT
CLOSING ENTRIES

RETAINED EARNINGS 34,000

ACCRUED ACCOUNTS PAYABLE 28,000
OPERATING EXPENSE 4,000

RETAINED EARNINGS 63,000

INVENTORIES 28,000
COST OF SALES 35,000

INTEREST RECEIVABLE 6,000

INTEREST REVENUE 6,000
RETAINED EARNINGS 12,000

RETAINED EARNINGS 24,000

UNEARNED RENT 20,000
RENT REVENUE 4,000

COST OF SALES 25,000

ACCOUNTS PAYABLE 25,000

OPERATING EXPENSES 108,000

ACCUMULATED DEPRECIATION 12,000
CAPITALIZED ASSET 120,000

PREPAID INSURANCE 6,200

OPERATING EXPENSE 1,400
RETAINED EARNINGS 4,800