Problem 1

The income statements of Christian Inc. indicate the following net income:
2013 P1,500,000
2014 1,750,000
2015 2,000,000

An examination of the accounting records for the year ended December 31, 2015 indicates that several
errors were made. The following errors were discovered:
a. Salary accruals on December 31 were consistently omitted:
2012 P95,000
2013 110,000
2014 100,000
2015 140,000
b. The footings and extensions showed that the inventory on December 31, 2014 was overstated by
P190,000
c. P150, 000 worth of inventories were received on January 4, 2015. Upon investigation you discovered
that these goods were shipped by the supplier on December 30, 2015 FOB shipping Point. Further
investigation revealed that liability on the item were recorded when the goods were received.
d. Prepaid insurance were consistently omitted at the end of each year:
2012 P75,000
2013 100,000
2014 115,000
2015 120,000
e. Interest receivable was not recorded on December 31 of the following years:
2013 P20,000
2014 25,000
2015 30,000
f. On January 1, 2015 an equipment costing P400,000 was sold for 220,000. At the date of sale the
equipment had accumulated depreciation 240,000. The cash received was recorded by the company as
miscellaneous income.
g. You also discovered that on July 1, 2013, the company completed the construction of the left wing of its
factory building incurring a total cost of P750,000, which it had charged to repairs expense. The said
building has been used in operations for 5 years as of July 1, 2013 and its life was unaffected by the
extension. The building which had an origin cost P3,000,000 had an accumulated depreciation of
P1,125,000 as of December 31, 2015
Required:
1. What is the correct depreciation expense in 2015?
2. What is the correct net income in 2013?
3. What is the correct net income in 2014?
4. What is the correct net income in 2015?
Problem 2
You are performing for the first time the audit for the year ended December 31, 2014 of ABC Corp.
financial statements. The company reported the following amounts of net income for the years ended
December 31, 2012, 2013, 2014.
2012 P381,000
2013 450,000
2014 385,500
During your examination, you discovered the following errors:
a. You observed that there were errors in the physical count: December 31,2013 inventories were
understated by P 42,000 and December 31,2014 were overstated by P 69,000.
b. On December 30, 2014, GKNB recorded on account, merchandise in transit which cost P45,000.
The merchandise was shipped FOB Destination and had not arrived by December 31. The
merchandise was not included in the ending inventory
c. Accrual sales at each year end were consistently omitted as follows:
2012 P12,000
2013 15,000
2014 10,500
d. Accrual of salaries were also consistently omitted as follows:
December 31,2012 30,000
December 31,2013 42,000
e. On March 5,2013 a 10% stock dividend was declared and distributed. The par value of the shares
amounted to 30,000 and market value was 39,000. The stock dividend was recorded as follows:
Other expense 30,000
Ordinary shares 30,000
f. On July 1,2013 ABC paid three-year rent. The three-year premium of 18,000 was paid on that date,
and the entire premium was recorded as insurance expense.
g. On July 1,2014, ABC retired bonds with book value of P360,000 for P318,000. The gain was
deferred and amortized over 10 years as a reduction of interest expense on other outstanding bonds.
Required
5. What is the correct net income in 2012?
6. What is the correct net income in 2013?
7. What is the correct net income in 2014?
8. What is the retroactive adjustment to the beginning retained earnings in 2014 to correct the
prior years’ errors?
9. What is the adjusting entry in 2014 to correct the error in item e above?

Problem 3
Lane Company acquires copyrights from authors, paying advance royalties in some cases, and in others,
paying royalties within 30 days of year-end. Lane reported royalty expense of P375,000 for the current
year ended December 31. The following data are included in Lane’s balance sheets.
January 1 December 31
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000
During the year, Lane made royalty payments totaling _______________.
Problem 4
Use the following information for the next three questions. Poole Company paid or collected during the
current year
the following items:
Insurance premiums paid P 15,400
Interest collected 30,900
Salaries paid 135,200
The following balances have been excerpted from Poole's balance sheets:
December 31 January 1
Prepaid insurance P 1,200 P 1,500
Interest receivable 3,700 2,900
Salaries payable 12,300 10,600
Required:
1. The insurance expense on the income statement for the current year was _______________
2. The interest revenue on the income statement for the current year was ______________
3. The salary expense on the income statement for the current year was ______________

Problem 5
The equity balances of Memory Company as of the end of the reporting period are:
Ordinary share capital, P100 par, 360,000 shares P36,000,000
Subscribed ordinary share capital, 60,000 shares 6,000,000
Subscriptions receivable 2,000,000
Treasury shares, 20,000 shares, at cost 3,000,000
Retained earnings 10,000,000
The book value per share of ordinary is ______________