Questions Prelims

NATALIE Company reported that the financial statements contained the following error:
December 31, 2018

December 31, 2019
Ending Inventory P950,000 overstated P800,000
understated
Depreciation P250,000 understated
An insurance premium of P600,000 was prepaid in 2018 covering the years 2018,
2019, and 2020. The entire amount was charged to expense in 2018. No corrections
have been made for any of the errors. Ignore income tax.
QUESTION: What is the total effect of the errors on retained earnings on December 31,
2019.

Flag question: Question 32
Question 323 pts
RHEA Company reported sales revenue of P4,600,000 in the income statement for the
current year. Additional information for the current year is as follows:
January 1
December 31
Accounts receivable 1,000,000 1,300,000
Allowance for doubtful accounts 60,000 110,000
Advances from customers 200,000 300,000
QUESTION: The entity wrote off uncollectible accounts totalling P50,000 during the
current year. Under cash basis, what amount should be reported as sales revenue for
the current year?

Question 333 pts
While preparing the financial statements for 2019, RIZA Company discovered
computational errors in 2017 and 2018 depreciation expense. These errors resulted in
overstatement of each year’s income by P25,000, net of income tax. The net income
for 2019 is correctly reported at P500,000.
The following amounts were reported in the previously issued financial statements:
2018
2017
Retained earnings, January 1 700,000 500,000
Net
Income 150,000 200,00
0
Retained Earnings, December 31 850,000 700,000
QUESTION: What is the balance of retained earnings on December 31, 2019

Question 343 pts
JANE Company, reported cash basis sales revenue of P2,300,000 for the year ended
December 31, 2019. The entity provided the following information:
January 1 December
31
Accounts receivable 500,000 650,000
Notes receivable 150,000 200,000
During the current year, uncollectible accounts of P10,000 were written off and note
receivable of P100,000 was discounted for net proceeds of P90,000 and credited
directly to notes receivable.
QUESTION: Under Accrual basis, what amount should be reported as sales?

Question 356 pts
RUTH Company has apprehensions of possible pilferage in its stock of merchandise on
December 31, 2019. The following data were available
December 31, 2018 December 31,
2019
Physical inventory, at cost 600,000 1,000,000
Sales 4,000,000
Cost of sales 2,400,000
Accounts receivable-trade 1,000,000 1,400,000
Accounts Payable-trade 1,490,000 1,850,000
In 2019, accounts written off amounted to P120,000. Sales returns with credit memo
amounted P150,000 and purchase returns of P50,000.
Cash receipts from customers after P240,000 discounts totalled P5,500,000 while cash
payments to trade creditors amounted to P3,700,000 after discounts of P321,000. Cash
paid to customers for goods returned was P50,000. On this transaction, accounts
receivable was debited.
QUESTION 1: Under accrual basis, what amount should be reported as gross sales for
the current year?

QUESTION 2: Under accrual basis , what amount should be reported as gross
purchases for the current year?

Question 363 pts
HAZEL Company reported the following increases in account balances during the
current year.
Assets 3,450,000
Liabilities 1,112,000
Share Capital 2,200,000
Share Premium 240,000

There were no changes in retained earnings other than for a dividend payment of
P660,000.
QUESTION: What was the net income for the current year?

Question 373 pts
NADINE Company was incorporated on January 1, 2019 with proceeds from the
issuance of P7,500,000 in share capital and borrowed funds of P1,100,000. During the
first year of operations, revenue from sales and consulting amounted to P4,000,000 and
operating costs and expenses totalled P3,000,000.
On December 15, 2019, the entity declared a P300,000 cash dividend, payable to
stockholders on January 15, 2020. No additional activities affected owners’ equity in
2019. The liabilities increased to P1,200,000 by December 31, 2019.
QUESTION: On December 31, 2019, what amount should be reported as total assets?

Question 383 pts
CHOW Company reported retained earnings of P400,000 on January 1, 2019. In
August 2019, The entity determined that insurance premium of P75,000 for the three
year period beginning January 1, 2018 had been paid and fully expensed in 2018. The
income tax rate is 30%.
QUESTION: What amount should be reported as corrected retained earnings on
January 1, 2019?

Question 399 pts
CARMEN Company provided the following information for each year:

2019 2018
Sales 4,650,000
4,300,000
Cost of Goods sold 2,346,000 2,305,000
Expenses 1,500,000 1,433,000
Beginning retained earnings 1,441,000 1,077,000
Dividend Paid 175,000 184,000

In 2020, the entity discovered that ending inventory for 2018 was understated by
P115,000 and the ending inventory for 2019 was overstated by P290,000.
QUESTION 1: What is the corrected income for 2018?

QUESTION 2: What is the corrected income for 2019?
QUESTION 3: What is the corrected balance of retained earnings for December 31,
2019?

Question 403 pts
On January 1, 2019, LBear, INC. purchased a photocopying machine for P750,000.
Present information indicated that the photocopying machine have an estimated useful
life of 8 years (with 150,000 residual value) at the acquisition date. The depreciation
expense recognized for the year 2019 is 75,000. On January 1, 2020, LBear
determined, as a result of additional information, that the equipment has a remaining
useful life of 10 years with no residual value.
QUESTION: The depreciation expense recognized for the year 2019 is
(understated)/overstated by

Question 416 pts
The following information pertains to Coffee Company’s depreciable assets:
1. On April 1, 2015 Coffee Company purchased Asset 1 for 410,000. The

entire cost of the asset was expensed on April 1, 2015. The estimated
useful life of this asset is 15 years with no residual value.
2. On June 1, 2016 Asset 2 cost 900,000 was acquired. Available
information on the acquisition date indicated that the expected useful life
of Asset 2 was 12 years with P10,000 residual value. Additionally, the
straight-line depreciation method was used. However, on January 2,
2018 additional information indicated that the remaining life of the asset
would be 6 years with a residual value of P75,000.
3. On January 31, 2017 Coffee Company purchased Asset 3 for
P3,000,000. The expected useful life of the asset on the date of the
acquisition is 20 years with no residual value. The straight-line
depreciation method was used and no new information is available
suggesting changes of the previously made estimates.
QUESTION 1: The adjusting entry on January 1, 2019, relative to Asset 1 should
include a credit to Retained Earnings of

QUESTION 2: How much is the total carrying amount of all the assets on January 1,
2019?

Question 423 pts
The following information were from the income statement of Boss, INC. for the year
ended December 31, 2019:
 Sales 1,100,000
 Cost of goods sold 650,000
 Operating expenses 150,000

The audit of the 2019 financial statements disclosed the following errors:
 December 31, 2019, inventory understated P21,000.

 Accrued expenses of P7,000 and prepaid expenses of P8,000 were not
recognized in the company’s books.
 Purchases of P50,000 made in December 2019, were not recorded
although the goods were received and properly included in the December
31 physical inventory.
 A machine was sold for P40,000 on July 1, 2019 and the proceeds were
credited to the Sales account. The machine was acquired on January 1,
2016 for P100,000. At that time, it had an estimated life of 5 years with no
residual value. No depreciation was recorded on December 31, 2019.
 Sales of P8,000 were not recorded until January 2020, although the
goods were shipped in December 2019, and were excluded from the
December 31 physical inventory.
QUESTION: What is the corrected net income for the year ended December 31, 2019?

Question 436 pts
Happy, INC. uses accrual basis of accounting. However, year-end examination of the
company’s records revealed that some expenses and revenues have been recorded on
a cash basis. Income statements prepared by the bookkeeper reported P200,000 net
income for 2018 and P260,000 net income for 2019. Items improperly handles were
listed below:
 Salaries payable on December 31 have been consistently omitted from

the records of that date and have been recorded as expenses when paid
in the following year. The salary accruals recorded in this manner where:
December 31, 2017 P8,500
December 31, 2018 9,100
December 31, 2019 4,600
 A lessee paid rent worth P70,000 on December 29, 2018. It was

recorded as income on December 29, 2018 even though the rental
pertains to 2019 and 2020 rent.
 Invoices for office supplies purchased have been charged to expense
accounts when received. Inventories of supplies on hand at the end of
each year have been ignored, and no entry has been made for them.
December 31, 2017 P7,200

December 31, 2018 3,900
December 31, 2019 7,900
QUESTION 1: What is the corrected net income for 2018?
QUESTION 2: What is the corrected net income for 2019?

Question 446 pts
Mister Potato Company started operations on January 1, 2015. Financial statements for
2018 and 2019 contained the following errors:
December 31, 2018 December
31, 2019
Ending inventory Overstated by P130,000 Understated by
P160,000
Depreciation expense Overstated by 60,000
Prepaid Insurance
Understated 50,000

 A fully depreciated equipment was sold for P`26,000 on December 31,

2019. The sale was not recorded until 2020. No corrections have been
made for any of the errors. (Ignore income tax considerations)
1. How much would be the total effect of the errors in Potato’s 2019 net
income? If the effect is a decrease, kindly put a negative sign

(-) in your answer, e.g. -100000.
2. How much would the (overstatement)/understatement in Mister Potato’s
accumulated profits balance at December 31, 2015? If the

effect is a decrease, kindly put a negative sign (-) in your answer, e.g. -
100000.

Question 456 pts
Case Corporation purchased a machine on April 1, 2013 with an estimated useful life of
ten years and no salvage value. The machine was depreciated by double declining
balance method. On January 1, 2018, Case changed to the straight-line method of
depreciation.
Required: Assuming the cost of the machine is P5,000,000,
QUESTION 1: Compute for the accumulated depreciation to be presented in the
financial statement for the year 2017.

QUESTION 2: How much would be reported as depreciation expense for
2018.

Question 466 pts
During 2019, Kerr Company determined that the equipment previously depreciated over
a ten year life had a total estimated useful life of eight years. Assuming the company
uses SYD method. An accounting change was made in 2019 to reflect the change in
accounting estimate. The company also change its depreciation method from SYD to
straight line method. The equipment was acquired on January 1, 2016 at an acquisition
cost of P460,000.
QUESTION 1: Compute for the book value of the asset at the end of 2018.
QUESTION 2: How much is the depreciation expense for 2019?

Question 473 pts
On January 1, 2018, Black Company changed its inventory cost flow method to FIFO
from Average. The change resulted in an increased of P200,000 and P600,000 in the
beginning inventories for 2017 and 2018.
QUESTION: What pretax amount should be presented in 2018 statement of changes in
equity as cumulative effect of the change of accounting policy?

Question 4815 pts
Before preparing the closing entries as of December 31, 2020, the following errors are
discovered in the record of Grace Trading Company:
1. Sales in 2020 of P21,100 were recorded in 2019.

2. Merchandise purchased and received in 2019, amounting to P18,500,
was taken up in the company’s records in 2020 because the supplier’s
invoice was received late.
3. Official receipts totalling P23,400, issued to customers in 2020 were
recorded as collection in 2019.
4. Office supplies costing P690, bought for cash on March 27, 2020 were
recorded in the book at P96. At year end, there were no remaining office
supplies.
5. The interest revenue of P120 that should had been accrued on the note
outstanding as of December 31, 2018 was overlooked.
6. Commissions of P1,250 paid to a salesman on October 31, 2019 were
charged to representation expense.
7. Merchandise inventory as of December 31, 2018 was undervalued by
P14,510.
8. Merchandise inventory as of December 31, 2019 was overvalued by
P8,620.
9. Merchandise Inventory as of December 31, 2020 was overvalued by
P1,170.
10. A customer’s check of P7,500 was returned by the bank on November 3,
2020 due to lack of sufficient funds. Journal entry had not yet been taken
up in the books to record the returned.
11. Depreciation on equipment costing P12,000, bought on June 30, 2018
was computed on an estimated useful life of 8 years. The engineers
estimated that the useful life of the asset should be revised to 10 years
effective 2020.
12. Accrued salaries as of December 31, 2019 of P1,200 was not taken up.
13. Sale of equipment on October 1, 2020 was recorded as debit to cash and
credit to equipment of P23,000. The equipment was acquired on April 1,
2017 at P30,000, depreciated using straight-line w/o any provision for
salvage value and has a carrying amount of P13,500 on January 1, 2020.
14. Net income: 2018 – P 245,000, 2019 – P 283,000, and 2020 – P
277,700.
Required:
1. Adjusted Net Income 2018
4. Net effect of errors in working capital, 2020
5. Net effect of errors in retained earnings, 2020

Question 4930 pts
ABC Corporation’s accounting records consists only of a cash receipts books and cash
disbursement wherein a narrative description of receipts and disbursements together
with their corresponding amounts are recorded. At the end of each year, you are hired
to prepare financial statements based on GAAP. For the year 2018, you have
assembled the following data:
December 31, 2017 financial position:
ASSETS
Current Assets:
Cash P 150,000
Accounts Receivable 300,000
Notes Receivable 300,000
Investments 60,000
Mdse Inventory 350,000
Prepaid Expenses 40,000
Total Current Assets P 1,200,000

Property and Equipment
Cost Accum. Dep’n. Carrying Value
Land P 400,000 P ---- P 400,000
Store Equipment 500,000 150,000 350,000
Office Equipment 120,000 36,000 84,000
Total P1,020,000 P 186,000 834,000

Total Assets P 2,034,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable P 155,000
Notes Payable 360,000
Accrued Expenses 54,000
Total current liabilities P 569,000
Shareholders’ Equity
Share Capital, P100 par P 1,000,000
Share Premium 50,000
Retained Earnings 415,000 1,465,000

Total liabilities and shareholders’ equity P 2,034,000

Accounting Policy on Depreciation:
The company uses straight-line method on all property and equipment based on a 10-
year useful life with no salvage value. However, the company has adopted the SYD
method for store equipment effective January 1, 2018.

Summary of Cash Receipts and Disbursements for 2018:
Collections from customers
P 2,000,000
Sale of store equipment costing P100,000
on May 1, 2018
60,000
Cash received from bank in exchange of a 12% one-year 200,000
note issued to bank dated June 1
Proceeds from notes receivable discounted with face
270,000
value of 300,000
Payments to suppliers
1,200,000
Expenses paid
400,000
Cash paid for return of merchandise
40,000
Payment of notes payable on October 1, 2018
120,000
Unrecorded Transactions as of December 31, 2018:
1. Cash dividends of P5 per share were declared on December 20 2018 to

be paid on January 15, 2019.
2. On January 1, 2017, a store equipment with a cash selling price of
P160,000 was acquired through the issuance of 1,200 shares.
Management failed to inform you about this purchase.
3. On October 1, 2016, the company issued a 2-year, non-interest bearing,
P120,000 promissory note for the purchase of merchandise.
Management also failed to inform you about this. The prevailing market
rate of interest is 10% on similar note.

Customers’ and creditors’ accounts on December 31, 2018:
Accounts Receivable Ledger Accounts Payable Ledger
A Co. P 75,000 Dr. W Co. P 90,000 Cr.
B Co. 80,000 Dr. X Co. 120,000 Cr.
C Co. 150,000 Dr. Y Co. 70,000 Cr.
D Co. 50,000 Cr. Z Co. 20,000 Dr.

Miscellaneous year-end accounts
Mdse Inventory – P420,000; Prepaid expense – P50,000; Accrued Expense
– P45,000
Notes Receivable- 400,000 Notes Payable-300,000
Additional Information:
 The investment portfolio consists of short-term investments in marketable

equity securities with a total market valuation of 55,000 as of December
31,2018.
 Based on the aging of the account receivable as of December 31, 2018,
it was estimated that 36,000 of the receivables will be uncollectible.
 Inventories on December 31, 2018 did not include work in process
inventory costing 12,000 sent to an outside processor on December 29,
2018.
 During October 2018, a competitor company filed suit against the
company for patent infringement claiming 200,000 damages. The
company legal counsel believes that an unfavourable outcome is
probable. A reasonable estimate of the court’s award the to the plaintiff is
50,000.
Required:
Determine the following:
1. Sales for 2018
2. Cost of goods sold for 2018

3. Gain or loss on sale of equipment (Kindly put a negative sign if it is
loss)
4. Depreciation Expense for 2018
5. Net Income for 2018

6. Total Current Assets as of December 31, 2018
7. Property, Plant and Equipment as of December 31, 2018
8. Current Liabilities
9. Retained Earnings as of December 31, 2018
10. Total Shareholders’ Equity as of December 31, 2018

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NATALIE Company reported that the financial statements contained the following error:

December 31, 2018

the current year?

QUESTION 1: What is the corrected income for 2018?

1. On April 1, 2015 Coffee Company purchased Asset 1 for 410,000. The

QUESTION 1: The adjusting entry on January 1, 2019, relative to Asset 1 should

include a credit to Retained Earnings of

 December 31, 2019, inventory understated P21,000.

 Salaries payable on December 31 have been consistently omitted from

 A lessee paid rent worth P70,000 on December 29, 2018. It was

December 31, 2017 P7,200

QUESTION 1: What is the corrected net income for 2018?

QUESTION 2: What is the corrected net income for 2019?

 A fully depreciated equipment was sold for P`26,000 on December 31,

income? If the effect is a decrease, kindly put a negative sign

accumulated profits balance at December 31, 2015? If the

financial statement for the year 2017.

QUESTION 2: How much is the depreciation expense for 2019?

1. Sales in 2020 of P21,100 were recorded in 2019.

1. Adjusted Net Income 2018

2. Adjusted Net Income 2019

3. Adjusted Net Income 2020

4. Net effect of errors in working capital, 2020

5. Net effect of errors in retained earnings, 2020

1. Cash dividends of P5 per share were declared on December 20 2018 to

 The investment portfolio consists of short-term investments in marketable

1. Sales for 2018

2. Cost of goods sold for 2018

4. Depreciation Expense for 2018

5. Net Income for 2018

7. Property, Plant and Equipment as of December 31, 2018

9. Retained Earnings as of December 31, 2018

10. Total Shareholders’ Equity as of December 31, 2018

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