ADAMSON UNIVERSITY

INTERMEDIATE ACCOUNTING 3
QUIZ – NOTES TO FINANCIAL STATEMENTS (02)

1. Grandiose Company’s beginning inventory on January 1 was understated by P260,000 and

the ending inventory was overstated by P520,000. What was the effect of the errors on the cost
of goods sold for the current year?
a. 260,000 understated
b. 260,000 overstated
c. 780,000 understated
d. 780,000 overstated
Understated beginning inventory will understate the cost of goods sold; Overstated
ending inventory will understate the cost of goods sold.
260,000 + 560,000 = 780,000 understated

USE THE FOLLOWING INFORMATION FOR NOS. 2 TO 5

Grand Company failed to record P120,000 of accrued wages at the end of 2011. The wages
were recorded and paid in January 2012. Correct accruals were made on December 31, 2012.

Grand Company had the following financial statements information:

2015 2014
Revenue 1,350,000 1,000,000
Expenses 980,000 650,000
Net income 370,000 350,000
12/31/2015 12/31/2014
Total Assets 1,570,000 1,050,000
Total Liabilities 500,000 350,000
Total Owners’ Equity 1,070,000 700,000

2. What is the corrected net income for 2014?

a. 230,000
b. 350,000
c. 470,000
d. 250,000
Failure to accrue the wages in 2014 understated the liabilities and understated the
expenses. Understated expenses in 2014 overstated the 2014 net income
350,000 - 120,000 = 230,000

3. What is the corrected net income for 2015?

a. 490,000
b. 370,000
c. 250,000
d. 430,000
Since the wages were recorded and paid in 2015, expenses for the said year is
overstated. Overstated expense in 2015 understated the 2015 net income.
370,000 + 120,000 = 490,000

4. What is the correct amount of total liabilities on December 31, 2014?

a. 470,000
b. 230,000
c. 400,000
d. 500,000
Failure to accrue the wages in 2014 understated the 2014 liabilities
350,000 + 120,000 = 470,000

5. What is the correct amount of owners’ equity on December 31, 2015?

a. 1,070,000
b. 1,190,000
c. 1,010,000
d. 950,000
Understated expenses in 2014 overstated the 2014 net income. Hence, the 2014
owners’ equity is overstated by P120,000.

Overstated expense in 2015 understated the 2015 net income. Hence, the 2015
owners’ equity is understated by P120,000

Therefore, the correct owners’ equity on 2015 is P1,070,000 (counter balancing error)

USE THE FOLLOWING INFORMATION FOR NOS. 6 AND 7

On January 1, 2015, the management of Malady Corporation determined that a revision in the
estimate associated with the depreciation of storage facilities was appropriate. The facilities,
purchased on January 1, 2013 for P6,000,000, had been depreciated using the straight-line
method with an estimated residual value of P600,000 and an estimated useful life of 20 years.
Management has determined that the expected remaining useful life of the storage facilities is
10 years and the estimated residual value is P800,000.

6. What is the depreciation for 2015?

a. 270,000
b. 546,000
c. 466,000
d. 582,500
Total depreciation from 2013 to 2014
6,000,000 – 600,000 = 5,400,000/20 = 270,000 per year X 2 years = 540,000

Carrying amount, January 1, 2015

6,000,000 – 540,000 = 5,460,000

Depreciation Expense starting 2015

5,460,000 – 800,000/10 = 466,000

7. What is the carrying amount of the facilities at the end of 2015?

a. 6,000,000
b. 5,190,000
c. 4,440,000
d. 4,994,000
5,460,000 – 466,000 = 4,994,000

USE THE FOLLOWING INFORMATION FOR NOS. 8 TO 10

On January 1, 2019, Brewed Corporation purchased for P4,800,000 a machine with a useful
life of ten years and residual value of P200,000. The machine was depreciated by the double
declining balance until December 31, 2020. On January 1, 2021, Brewed changed to the
straight line method. The residual value did not change.

8. What is the accumulated depreciation of the machine on December 31, 2019?

a. 836,400
b. 872,700
c. 920,000
d. 960,000

Compute for the double declining rate:

4,800,000/10 = 480,000; 480,000/4,800,000 X 2 = 0.2

2019 Depreciation using double declining balance method

4,800,000 X 0.2 = 960,000

9. What is the accumulated depreciation of the machine on December 31, 2020?

a. 1,589,100
b. 1,658,200
c. 1,728,000
d. 1,840,000
2020 Depreciation using double declining balance method
4,800,000 – 960,000 X 0.2 = 768,000
2020 Accumulated depreciation
960,000 + 768,000 = 1,728,000

10. What is the depreciation expense on this machine for the year ended December 31, 2021?
a. 287,200
b. 384,000
c. 460,000
d. 359,000

Carrying amount, December 31, 2020

4,800,000 – (960,000 + 768,000) = 3,072,000

Depreciation expense starting 2021

3,072,000 – 200,000 = 2,872,000;
2,872,000/8 = 359,000