Reference no: EM133135544
Question 1 - During your examination of the accounting books of South Sky Company for the year ended December 31, 2022 revealed the following errors:
1. Unrecorded unpaid salaries at the end of 2021 and 2022 were P 100,000 and P 140,000, respectively.
2. The following errors were discovered in the audit of inventory at December 31, 2021: (a) over footing, P 220,000; (b) Under extension, P 30,000.
3. Unexpired insurance of P 120,000 for the year 2023 was expensed in 2022.
4. Unrecorded interest receivable at the end of 2023, P 20,000.
5. The proceeds of P 220,000 from sale of a machinery with a cost of P 400,000 was credited to Miscellaneous Income on January 1, 2022. The machinery was 60% depreciated on the date of sale. Depreciation for 2022 was recorded at the rate of 10%.
The reported net income at the end of 2021 and 2022 were P 1,750,000 and P 2,000,000, respectively.
Required -
1. What is the correct net income for the year 2021?
2. What is the correct net income for the year 2022?
Question 2 - Net income for Victory Company for the years 2021 and 2022 is shown below. An audit of the accounts, however, disclosed the following errors:
|
2021
|
2022
|
|
Net income after income tax
|
246,500
|
312,500
|
|
Understatement of year-end inventory
|
|
25,000
|
|
Purchase of computer at year end charged to expense. The estimated useful life is 10 years.
|
40,000
|
|
|
Credit purchases of merchandise not recorded but included in the physical count at year end
|
50,000
|
|
|
Rent received in advance and credited to income
|
|
18,000
|
|
Unrecorded unpaid taxes at year-end
|
|
20,000
|
Required -
1. What is the correct net income for the year 2021?
2. What is the correct net income for the year 2022?
Question 3 - While examining the December 31, 2022 financial statements of Bukidnon Company, a new client, you discover the following:
1. Inventory at January 1, 2022, had been overstated by P 30,000.
2. Inventory at December 31, 2022 was understated by P 50,000.
3. A three year insurance policy had been purchased on January 2, 2021, for P 15,000. The entire amount was charged as an expense in 2021.
4. During 2022, Bukidnon received a P 10,000 cash advance from a customer for merchandise to be manufactured and shipped during 2023. The 10,000 was credited to Sales Revenue. Bukidnon's gross profit on sales is 50%.
5. Net income reported on the 2022 income statement (before reflecting any adjustments for the above items) is P 215,000.
Required - What is the proper net income for 2022?
Question 4 - Pamana Company's bookkeeper is not familiar with accrual accounting concepts. He determined net income for 2022 to be P 79,800. In your audit of the company you determine the following:
1. Accrued, but unpaid, wages at the end of 2022 amounted to P 45,750 and have not been recorded.
2. Insurance premiums paid in 2022 totaled P 180,000, only 1/3 of which relate to coverage for 2022. The other 2/3 of which relate to coverage in future years. (The total amount was expensed when paid.)
3. Accounts receivable of P 500,000, which have been properly recorded, are expected to result in losses from uncollectibility of P 30,000. (No specific accounts have been written off as of the end of the year.)
4. Cash of P 115,000, received in late 2022, was recorded as revenue, although the work to be performed under the related contract will take place in 2023.
Required - What is the revised net income figure for 2022?