Reference no: EM132522645

Question - In June 2020, the controller of Quarantine Company conducted a thorough review of the past accounting practices, particularly of transactions with regards to year-end transactions. As a result of the internal audit procedure, he discovered the following errors:

1. In 2017, the company received P180,000 in partial settlement of an outstanding accounts receivable. The payment was accidentally credited to Revenue and reported in the 2017 Statement of Comprehensive Income.

2. In 2018, the company paid for a major overhaul of their existing equipment, ensuring it was in peek condition. As a consequence an entry was made to increase the equipment account by P24,000; however, upon review, the controller does not feel that the equipment's expected life, efficiency or effectiveness was improved. Since there is no long term benefit to the repair, the controller feels it should have been charged to Maintenance Expense in the Income Statement. The company uses straight line depreciation on their equipment with an expected useful life of ten (10) years. The company's policy is that a full year's depreciation is charged in the year of acquisition.

The company has a 30% tax rate.

Required -

1. Calculate the earnings correction that Quarantine Company would present in their 2020 financial statements.

2. Prepare journal entry to record the correction of the errors.

3. Provide appropriate disclosure of the errors if you consider it necessary.