Professional Documents
Culture Documents
Chapter16 - Answer
Chapter16 - Answer
16 SUBSTANTIVE TESTS OF
INCOME STATEMENT ACCOUNTS
16-1. a
16-2. d
Requirement (1)
2006 2005
Reported net income P 35,000 P 27,000
Subtract ending inventory overstatement (2,000) (5,000)
Add beginning inventory overstatement 5,000
Subtract wages payable when incurred (800) (700)
Add wages payable when expensed 700
Subtract bad debts (400)* (1,300)
Add back prepayments in year recorded as 200 500
expense
Subtract prepayments in year expense is incurred (500)
Correct net income P 37,200 P 20,500
* P1,700 P1,300
Requirement (2)
2007
Jan. 1 Retained Earnings 4,300
Insurance Expense 200
Inventory 2,000
Wages Expense 800
Allowance for Doubtful Accounts 1,700
16-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition
Requirement (1)
Orange Corporation
Computation of Corrected Net Income
For Years Ended December 31, 2006 and 2005
2006 2005
Debit Debit
(Credit) (Credit)
Reported income P(220,000) P(195,000)
Change in accounts receivable loss
experience rate (17,400) ---
Unrealized loss (gain) on marketable securities 19,000 (3,000)
Ending merchandise inventories overstated:
December 31, 2005 (4,000) 4,000
December 31, 2006 6,100
Misposting of equipment purchase:
Decrease in operating expenses 2005 (10,900)
Increase in operating expenses 2006 1,100
Misposting of proceeds of equipment sold (2,500)
Recognition of prepaid insurance 900 (1,800)
Corrected net income P(216,800) P(206,700)
16-4 Solutions Manual to Accompany Applied Auditing, 2006 Edition
16-5. XOR Corporation
XOR Corporation
Worksheet to Correct Net Profit and Balance Sheet Accounts
From 2004 to 2006
Net Profit Adjustments to Balance Sheet Accounts
Retained Prepaid Prepaid Accrued Accrued
2004 2005 2006 Inventory Earnings Expenses Income Expenses Income