ReSA Review School of Accountancy No. 735-9807 & 734-3989 AUDITINGPROBLEMS IRENEO/ESPENILLA ACCOUNTING CHANGES, ERROR CORRECTIONS, CASH/ACCRUAL and SINGLE ENTRY ERROR CORRECTION PROBLEM L:You were engogedtar the first tire to audit the financial statements of Yoda Corporation for the year endee December 31, 2017. The company started its operations in 2015. In reviewing the books, you viscovered that certain transactious/adisctments had either been overlooked or improperly recorded nt the end of the years 2025 to 2017, Ornissions/ailures and errors for each year are summarized below: [December 31 ~~] | 301s 1 sons of the foliowingyear-end accrdats/deterrals: I a Unearned rentat income - | 3,000 b. Accrued interest income [1,000 ©. Prepard insurance expense i 4. Acerved salanes 8,000 overstatement year-end sive stories - Uncerstarerent im year end inverrcs 12,000 | 4 Dewery of merchandise at year uw’ to”tustomels, recorded as sales pon coliection the following year 35,000 [5 eceitot merchandise at yearend, recorded a3 purchases upon | payment the following year © cash recewed from customers at yearend, Fecerded as soles, | | denvenesyet to be made the following yout 5S Payments to suppliers at year endfor ods fovlomng yearrecorded 9s purchases uan payment | Organization costs incurred the aarp of re Business at Degg of 2015 was capitalized as an ntynsibieosset nd Sccordingly amortized over pers of two vers 3° Moyer Tepairs on the company's equpraent were Fecognired os Sutnght experses, The company depreeiates oquiyment at 10% per Shum, but depreciation inthe yea of the expenditure i at 5% 18,000 | 23,000, 42,000 | 35.000. be received the” t t ‘The company's books also revesied the folowing information ; oo 2015 2016 2017 | ["Recumilated protts 2ss.a | 691,000 | 3,001,000 | Prof 4%, J00 | 586,000 460,600 | [Biwdeiiis deciared and distributes 110,000 | 130,000 150,000 } Required: Compute for the following ‘Adjusted profits for 2015 and 2017 ‘Adjusted accumulated profits valances at the end of 2026 and 2017 Net effects of the errors bn the 20:5, ard 2016 working capital [Net misstatement in total assets at the end of 2037 [Net misstatement in total linbiities at the end of 2026 wareigi stoternents uf Clerk Inc. for the year 2017-The details of the before any adjustments, are as follows, PROBLEM 2:You are auditing the company's Accumulated Profit acco nCCJMEAIED PROFIT Date | Particulars betnt Cred | Balance | 01.01. 2015 | Balance } 570,000 | 12.31. 2015 Net loss for the year 70,000 500,000 01.31 2016 | Owidends paid 716,000 290/000! | 94.20 2016 | Pard in Caprtal in excess 1 oat | 435,000 | 425,000. | 0831 2016 | Gain on reticement 91 preference ‘99,000 | $15,000 11234 2016; Net income for the year | 750,000. 1,265,000 | 01.31 2017 | Dividends pad 150,000 115,000 1231, 2017 Net loss for the yeo 248,250, 5 a6, 750ReSA: The Review School of Accountancy Page 2 of 5 Your examination disclosed the toflowing The following were omitted at ‘he er ot each year: 2013 2016 2015 2014 Accrued income 11,700 9,300 8,400 7,050 Prepayments i100 ___12)750. Total £1,700 20,400 P8400 _P19/800 Unearned income 14,400 44,700 Accrued expenses 14,250 13,059, 9,300___8,100 Total P28,650. 13,050 21,000 P8,100 Dividends had been seclared 1 2045 and in 2036 but were not recorded until paid the following year. Dividends declared in December 2117 tut paid and recorded only in 2018 amounted to P150,000. The company received tra ssportation equipment as donation from a stockholder on March 31, 2014. As of the date of donation, the equipment has a "emaining useful life of 3 years and a fair value of 240,000. The only entry made at the slate of the donation was expensing P15,000, which was the fee paid to effect the transfer of gvunership 4. Merchandise inventonescosting PS1,00 anid P48,000 were in transit from a supplier-at the end of 2015 and 2016, respectively. These were purchased under FOB shipping point and the goods were excluded from the physica! count made ‘at the end of each year, The purchases; however, were recorded the immediate following yea, up0" receipt of the complete purchase invoice documents. fe. Merchandise inventories with sales invoice prices of 70,000 and P140,000 were in transit to ‘customers at the end of 2015 ano .Ui7, reepectively. These goods, sold at 30% gross profit based on sales, sold under FOB Destination, were recorrle’ as sales in 2015 and 2017, respectively. Since goods have already been physically delivered as of the cout date, these goods were no longer included in the physical count of that particular year Requirements: Compute for the following: Accumulated profit as of December 31, 2013, 2025 and 2017 Profit(Loss) for the years ended Devember 312014 and 2016 Net adjustments to working capital, Decemper 31, 2016. Not adjustments to total liabil cemoer 31, 2015 Net adjustments to total assets, Cocernber 31, 2017, ACCOUNTING CHANGES PROBLEM 3: Lora Co. has been using the FIFO method of mventory casting since it Began operations in 2014. Net income reported for each year uindcr this costing method had been as follows Net income 2014 71,200,000 2015 985,900 2016 739,006 In 2016 the company decides to charige the raventory cost formulato the weighted average method. The following are the December 31 inventory balances under each method FIFO Weighted Average 2014 180,000 210,000 2015, 158,000 483,000 2016 195,000, 20,00 Requirements: Compute for the following, 1. Restated net income for 2015 45 a result ct #he change in policy 2) Adjusted profit for 2016 as a rosut of the change in policy, 3. Retroactive adjustment to the accumulated profits hegiarung balance of2016 as a result of this change PROBLEM 4: Bnght Company purchased the following equipment at the beginning of each year 201330,000 pordanae AUDITING PROBLEMS - BATCH 37ReSA: The Review School of Accountancy Page 3 of 5 JM-ine, over a S-year total useful hfe and with @ The company depreciates its equipment uncer st salvage value exjual to 10% of oviainal cost At the hequnin of 2015, the following changes were elected a. Sum-of years digits methea, 1b. Useful wes haveneen extended iy two yoars The salvage values have bren reduced to 4% of the asset's onginal cost. Depreciation expense for 2014 and 2013 2 2015 Depreciation expense, assuring the company changed its depreciation method to double~ decting iastead of SYD. CASH/ACCRUAL; SINGLE ENTRY PROBLEM 5. SMI Corp. accounts for W's sates under the cash pasts, Total collections from customers, sing cash sales made and recovencs of previously written-off accounts, based on SMB Corp.'s cash pts books amounted te P,400,000 xh nsvestigation revealed the following additional information: Accounts receivable, January 1, 2016 Accounts receivable, December 31, 2016 Notes recewable, trade, January 1, 2916. Notes recervable, trade, December 31, Sales discounts taken by custoineis Sales returns hefare collections were inade (Evidenced by sued eredi memos) rade, "hus refunds were given vable a reviouly write-olt - 16 Sales returne after collections Write off of worthiess accounts © Cash recovenes from account basis of accounting, s under the accru Requirements: Compute for the follow. Gross sales for the year Net sales for the year Uneollectible accounts expense for the year, ossurnng that the required allowance for uncollectible Tao at the begining and at the end of the year, respectively accounts were P21,009 ani P35 PROBLEM 6. The records of your audit ciest, SUV Corp, which maintains records under cash-basts, Feveated total payments made to suppiers of merchandise amounted to P1,250,000. Further investigation revealed the following additional information | accourts payabie, January 1, 70: s payable, December 31, 2016 Notes payable-trade, lanusty 3, 201 7 "Notes payable-trade, December 31, 7016 Merchandise inventories, December 31 2046 | Purcnase aiscounts purchase returns before 1 orwere received from the supy Purchase Feturns after payinerts were made, ths, cash was received | | trom supphers as refunds ve, thus credit memos iy payments were m, Requirements: Compute for the following under the accrual method. 1. Gross purchases for the yes 2. Cost of goods sold far the year PROBLEM?:An excerpt of ABC Corp.'s inceme statements prepared under cash basis included total operating expenses amounting to P7€5,000 and a total royalty income amounting to P9B0,000. Further ‘exarnination revealed the following information F nanuary 1, 2018, Dee, 31,2016 5 | Accrued operating expenses; 124,300 £178,000 Prepaid operating exp ses 56.090 90,000 ‘accrued royalty incor 44.000 25,000} Unearned royaity scorn fo2,008 76,000 AUDITING PROBLEMS - BATCH 37 : 100 * Aca