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ERROR CORRECTION, CASH AND ACCRUAL BASIS, SINGLE ENTRY

Problem 1: PAKTAY Co. is a calendar year entity. The financial statements contained errors as follows:

December 31, 2012 inventory is overstated 35,000


December 31, 2013 inventory is understated 10,000
Depreciation for 2012 is overstated 25,000
Depreciation for 2013 is understated 8,000
December 31, 2012 prepaid insurance is 5,000
understated
December 31, 2013 unearned rent is overstated 4,000
December 31, 2013 accrued salaries is understated 20,000

1. What is the effect of the errors on the following?


a. Net income for 2013
b. Retained earnings on December 31, 2013
c. Working capital on December 31, 2013
2. Prepare adjusting entries on December 31, 2013.

Problem 2: The financial statements of ARAY CO. contained the following errors:

2012 2013
Ending inventory 140,000 overstated 200,000 understated
Rent expense 48,000 understated 66,000 overstated

1. If none of the errors were detected or corrected, by what amount will 2013 net income be overstated or
understated?

Problem 3: SHARONIAN began operations on January 1, 2012. The financial statements contained the
following errors:

2012 2013
Ending inventory 16,000 understated 15,000 overstated
Depreciation expense 6,000 understated
Insurance expense 10,000 overstated 10,000 understated
Prepaid insurance 10,000 understated

On December 31, 2013, fully depreciated machinery was sold for P10,800 cash but the sale was not recorded
until 2014. No corrections have been made for any of the errors.

1. Ignoring income tax, what is the total effect of the errors on:
a. Net income for 2012
b. Net income for 2013
c. Retained earnings on December 31, 2013
d. Working capital on December 31, 2013

Problem 4: TAHIMIK COMPANY recorded transactions on a cash basis but prepared adjustments at the end
of accounting period to conform to accrual basis.

The following account balances are provided for the year ended December 31, 2015.

2,000,00
Sales
0
Cash 200,000
Inventory 150,000
Rent Expense 240,000
1,000,00
Building
0
Land 300,000
1,200,00
Purchases
0
Retained earnings 345,000
Accounts Payable 100,000
Accounts Receivable 250,000
Equipment 400,000
Share Capital 1,500,00
0
Office Expenses 255,000
Insurance Expense 50,000
Supplies Expense 140,000
Accumulated Depreciation Building 200,000
Accumulated Depreciation
40,000
Equipment

Additional information:

1. Inventory on December 31, 2015 amounted to P230,000.

2. Accounts Receivable
December 31, 2015 P290,000
December 31, 2014 250,000

3. It is estimated that P15,000 of the outstanding accounts receivable on December 31, 2015 may prove
uncollectible.

4. Depreciation Rate
Building 5%
Equipment 10%

5. Accounts Payable
December 31, 2015 P130,000
December 31, 2014 100,000

6. Accrued rent on December 31, 2014 was unrecorded in the amount of P5,000.
Accrued Rent on December 31, 2015 amounted to P10,000.

7. Prepaid insurance on December 31, 2014 in the of P7,000 was not recognized.
Prepaid insurance on December 31, 2015 amounted to P12,000.

REQUIRED:
a. Prepare adjusting entries on December 31, 2015.
b. Prepare an Income Statement.
c. Prepare a statement of financial position.

Problem 5: MAINGAY COMPANY provided the following information for the current year:

JAN. 1 DEC.
31
Cash 620,000 ?
Accounts Receivable 670,000 900,000
Inventory 860,000 780,000
Accounts Payable 530,000 480,000

The sales and cost of goods sold were P7,980,000 and P5,830,000 respectively. All sales and purchases were
on credit. Various expenses of P1,070,000 were paid in cash. There were no other pertinent transactions.
What is the cash balance on December 31?

Problem 6: LOUD COMPANY reported the following changes in the account balances for the current year,
except for retained earnings:

ACCOUNT INC. /
(DEC.)
Cash 790,000
Accounts Receivable, net 240,000
Inventory 1,270,000
Investments (470,000)
Accounts Payable (380,000)
Bonds Payable 820,000
Share Capital 1,250,000
Share Premium 130,000

There are no entries in the retained earnings account except for net income and a dividend declaration of
P190,000 which was paid in the current year. What was the net income for the current year?
Problem 7: EASY COMPANY was incorporated on January 1, 2015, with P5,000,000 from the issuance of
share capital and borrowed funds of P1,500,000. During the first year of operations, net income was
P2,500,000.

On December 15, 2015, the entity paid a P500,000 cash dividend. No additional activities affected
shareholders equity in 2015. On December 31, 2015, the liabilities had increased to P1,800,000.

On December 31, 2015, what amount should be reported as total assets?

Problem 8: An analysis of the incomplete records of ROLLY D GIANT Company produced the following
information for 2013:

Increases
Cash 420,000
Accounts Receivable 140,000
Accounts Payable 40,000
Prepaid Insurance 20,000
Decreases
Inventory 100,000
Equipment 10,000
Notes Receivable 60,000
Accrued salaries 30,000
payable

Summary of cash transactions


Receipts
Cash sales 300,000
Collections on accounts 3,000,000
receivable
Collections on notes 240,000
receivable
Interest on notes 20,000
receivable
Purchase returns and 50,000
allowances (total
purchase returns and
allowances, 80,000)
Disbursement
s
Cash purchases 100,000
Payments on accounts 1,650,000
payable
Sales returns and 40,000
allowances (total sales
returns and allowances,
P120,000)
Insurance 70,000
Salaries 1,000,000
Equipment 80,000
Other expenses 150,000
Dividends 100,000

a. Compute the net income using the single entry method


b. Prepare an income statement for the year ended December 31, 2013.

Problem 9: EDZEL D MACHO Company provided the following data obtained from the single entry records for
2013:

December 31 January 1
Cash 1,600,000 1,200,000
Notes 1,200,000 400,000
receivable
Accounts 2,000,000 1,600,000
Receivable
Merchandise 960,000 1,600,000
inventory
Equipment 1,120,000 1,200,000
Notes Payable 480,000 720,000
Accounts 1,040,000 1,200,000
payable
Accrued 40,000 80,000
interest
payable
Unearned rent 40,000 120,000
income

Receipts
Accounts 3,000,000
receivables (after
sales discount of
P100,000)
Notes Receivable 960,000
Cash sales 800,000
Rent income 80,000
Sale of equipment 120,000
costing P200,000
and carrying
amount of P100,000
Investment 600,000
Disbursement
s
Accounts payable 1,520,000
Notes Payable 1,280,000
Cash purchases 600,000
Interest Expense 160,000
Expenses 800,000
Equipment 400,000
Withdrawals 400,000

Accounts receivable of P120,000 were written off as uncollectible. Returns of P320,000 were made on
merchandise sales. Allowances of P80,000 were received on merchandise purchases

a. Compute for the net income using single entry method


b. Prepare an income statement.

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