13

Problem 1

(1) Schedule to compute correct profit:

Under(over)statement in Profit
2010 2011 2012 RE,
Omission of accrued 1/1/12
wages
12/31/10 (80,000) 80,000
12/31/11 (60,000) 60,000 (60,000)
12/31/12
(78,000) Omission of unused supplies
12/31/10 32,000 (32,000)
12/31/11 25,000 (25,000) 25,000
12/31/12 22,400
Omission of accrued interest income
12/31/10 18,000
(18,000) Sale of equipment - Proceeds
(25,000)
Gain on sale 7,000
Recorded depreciation 4,200 4,200 4,200
(9,600) Omission of unearned rent
(40,000)
Net under(over)statement (43,800) (800)
(56,400) (44,600) Reported Profit 450,000
290,000 440,000
Corrected Profit 406,200 289,200 383,600

(2) Audit adjusting entries:

Retained Earnings 60,000

Wages Expense 60,000

Wages Expense 78,000

Wages Payable 78,000

Supplies Expense 25,000

Retained Earnings 25,000

Unused Supplies 22,400

Supplies Expense 22,400

Retained Earnings 9,600

Accumulated Depreciation 36,600
Equipment 42,000
Depreciation Expense 4,200

(3) Correcting entries in 2013

Retained Earnings 78,000

Wages Expense 78,000

Supplies Expense 22,400

Retained Earnings 22,400

Retained Earnings 5,400

Accumulated Depreciation 36,600
Equipment 42,000
Problem 2 (Gloria Company)

Audit adjustments to correct 2011 financial statements Audit adjustments to correct 2012
financial statements

Other operating income 8,000 Retained earnings

8,000
Unearned commission income 8,000 Other operating income
8,000

Other operating income 6,400

Unearned commission income
6,400

Prepaid rent 16,000 Selling and administrative expenses

16,000
Selling and administrative expenses 16,000 Retained earnings
16,000

Prepaid rent 21,000

Selling and administrative expenses
21,000
Interest receivable 8,000 Other operating income 8,000
Other operating income 8,000 Retained earnings
8,000

Interest receivable 12,000

Interest income 12,000

Sales 90,000
Advances from customers
90,000

Cost of sales 15,000 Retained earnings 15,000

Accounts payable 15,000 Cost of sales
15,000

Equipment 20,000 Equipment 20,000

Selling and administrative expenses 20,000 Retained earnings
18,000
Accumulated depreciation
2,000

Selling and administrative expenses 2,000 Selling and administrative expenses

4,000
Accumulated depreciation 2,000 Accumulated depreciation
4,000
(a
) Gloria
Company
Comparative Statements of
Comprehensive Income
For the Years Ended December 31, 2012
and 2011

2012 2011
Sales P 910,000 P 720,000
Cost of Sales 585,000 465,000

Gross Profit P 325,000 P 255,000

Other Operating Income 73,600 30,000

Total Income P 398,600 P 285,000

Less: Selling and Administrative Expenses 279,000
156,000
Net Income from Operations P 119,600 P 129,000
Interest Expense 80,000 20,000

Net Income P 39,600 P 109,000

(b) Effect on total assets, December 31, 2011 (see audit adjusting entries for 2011)
= 16,000 + 8,000 + 20,000 – 2,000 = P42,000 understated

(c) Effect on total assets, December 31, 2012 (see audit adjusting entries for 2012)
= 21,000 + 12,000 + 20,000 – 2,000 – 4,000 = P47,000 understated.
(d) Effect on total liabilities, December 31, 2012 (see audit adjusting
entries for 2012)
= 6,400 + 90,000 = 96,400 understated