AUDITING PROBLEMS EXERCISE 01

NAME: SCORE:
YEAR AND SECTION: DATE:

INSTRUCTIONS:

A. Indicate the effects of each of the following errors by writing “O” for overstatement, “U” for
understatement, and “X” for no effect.
B. Prepare adjusting entries assuming the errors were discovered in (a)2018, (b) 2019, and (c) 2020.

1. The company failed to record purchases of merchandise on account of Php25,000 at the end of 2018.
2018 2019
a. Purchase of the year ____ ____
b. Accounts payable at the end of the year ____ ____
c. Net income for the year ____ ____
d. Retained earnings at year-end, before closing ____ ____
e. Retained earnings at year-end, after closing ____ ____

2. Sale of merchandise on account on December 30, 2018 amounting to Php20,000 was not recorded until the
customer paid his account in January 2019.
2018 2019
a. Sales for the year ____ ____
b. Accounts receivable at the end of the year ____ ____
c. Net income for the year ____ ____
d. Retained earnings at year-end, before closing ____ ____
e. Retained earnings at year-end, after closing ____ ____

3. The depreciation expense in 2018 was overstated by Php10,000

2018 2019
a. Expense for the year ____ ____
b. Accumulated depreciation at the end of the year ____ ____
c. Net income for the year ____ ____
d. Retained earnings at year-end, before closing ____ ____
e. Retained earnings at year-end, after closing ____ ____

4. The Company paid one-year insurance premium of Php24,000 effective April 01, 2018. The entire amount
was debited to expense account and no adjustment was made at the end of 2018.
2018 2019
a. Expense for the year ____ ____
b. Prepaid insurance at the end of the year ____ ____
c. Net income for the year ____ ____
d. Retained earnings at year-end, before closing ____ ____
e. Retained earnings at year-end, after closing ____ ____

5. On December 31, 2018, the Company acquired a parcel of land and a building at a total cost of Php500,000.
The entire amount paid was debited to the land account. A reasonable estimate of the cost that should have
been allocated to the building was Php200,000. The building has an estimated life of 20 years.
2018 2019
a. Land at the end of the year ____ ____
b. Building at the end of the year ____ ____
c. Net income for the year ____ ____
d. Retained earnings at year-end, before closing ____ ____
e. Retained earnings at year-end, after closing ____ ____

The fear of the Lord is the beginning of knowledge, but fools despise wisdom and instruction. – Proverbs 1:7 NIV //:KBG Page 1 of 1

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