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RM Company has completed the statement of comprehensive income and statement of financial position (summarized and uncorrected, shown below) at December 31, 2019.
Subsequently, during an audit, the following items were discovered:
a. Expenses amounting to P7,000 were not accrued.
b. A conditional sale on credit for P12,000 was recorded on December 31, 2019. The goods, which cost P8,000, were included in the ending inventory; they had not known
and the credit had not been approved. Ownership had not passed.
c. Merchandise purchased on December 31, 2019, on credit for P6,000 was included in the ending inventory because the goods were on hand. A purchase was not recorded
because the accounting department had not received invoice from the vendor.
d. The ending inventory was overstated by P15,000 because of an addition error on the inventory sheet.
e. A sales return (on account) on December 31, 2019, was not recorded: sales amount was P15,000, and cost was P8,000. The ending inventory did not include the goods
returned.
Unadjusted Adjustments Adjusted Explanation
Balances (A) (B) (C) (D) (E) Balances
Statement of comprehensive income:
Sales P90,000
Cost of goods sold 50,000
Gross margin 40,000
Expenses 30,000
Income 10,000
Statement of financial position:
Accounts receivable P42,000
Inventory 20,000
Remaining assets 30,000
Accounts payable 11,000
Remaining liabilities 6,000
Share capital, ordinary 60,000
Retained earnings 15,000
REQUIRED:
1) Assuming, you are the auditor assigned to audit Inventory of RM Company, prepare schedule as shown below to make necessary adjustments to transactions indicated
above. Disregard income taxes.
2) Based on the schedule you prepared, prepare adjusting entries to reflect adjustments to be made on the books of your client.
December Expense 7,000
31,2019 Accrued Expense 7,000
To record Expense accrued