Reference no: EM133177500

Question - The records of Yoimiya Corporation have never been audited. The company is negotiating a large loan for expansion purposes. The bank has requested that an audit of the company be performed. During the course of the audit, the following facts were determined:

The inventory on December 31, 2020, was overstated by P 11,000.

The inventory on December 31, 2021, was understated by P 25,000.

Total PPE was underdepreciated by P 9,000 in 2020 and in 2021 by P 12,000.

A three-year insurance premium of P 1,800 paid on January 1, 2020, was debited in full to Administrative Expense at that time.

Accrued wages (an element of Administrative Expense) were not recorded as follows: 2020, P900; and 2021, P1,500.

The patent, which originally cost P 17,000, is being amortized to Administrative Expense over a 17-year life. Evidence clearly indicates that its economic life will approximate 14 years from date of acquisition.

Service revenues earned but not yet collected were not recognized when earned as follows: 2020, P 4,000; and 2021, P 6,500. Revenue is recognized when collection is made.

A delivery truck purchased in January 2021, at a cost of P 22,000, was debited to Selling expenses at that time. The truck has an estimated useful life of 10 years and an estimated residual value of P 2,000. The company uses straight-line depreciation method.

Allowance for doubtful accounts in 2020 was understated by P 7,500.

Required - As the senior accountant, your duty now is to act on the findings of the auditor, prepare necessary adjustments and prepare corrected financial statements using the information presented.

1. Prepare the correcting entries in 2021.

2. Prepare the corrected balance sheet in 2021.

3. Prepare the corrected income statement in 2021.