Problem No.

1
During the course of your examination, of the 2020 financial statements of Diluc-Itto-Childe-
Kaeya-Zhongli (DICKZ) Corporation, the following data were discovered:
1. Office equipment, purchased January 2, 2019, at a cost of P22,000, having an estimated
salvage value of P2,000 and estimated useful life of 5 years, now is reestimated to have a
total life of 10 years from January 2, 2019. The straight-line method of depreciation is
used.
2. Interest deducted in advance on notes payable amounts to P5,000. The Interest Expense
account has a debit balance of P7,500. The company failed to record interest deducted in
advance at the end of 2018, P3,000; and at the end of 2019, P3,1000. All original entries
were made to the Interest Expense account.
3. Merchandise in transit, December 31, 2020, FOB Shipping point, of P15,000 was not
included in inventory as of December 31, 2020, but was entered in the purchases account
in 2020.
4. Merchandise costing P6,000 was included in the inventory as of December 31,2019, but
was not entered in the purchase account until January 10, 2020.
5. On July 1, 2020, a three-year insurance policy was purchased for P3,600. Prepaid
Expense did not appear on December 2020 balance sheet.

Prepare proposed adjusting entries as of December 31, 2020

Problem No. 2
State the effect of the following errors committed in 2020 upon the balance sheets and the
income statement prepared for 2020 and 2021.
a. The ending inventory is understated as a result of an error in the count of goods on hand
b. The ending inventory is overstated as a result of the inclusion of goods acquired and held
on consignment basis
c. A purchase of merchandise at the end of 2020 is not recorded until payment is made for
the goods in 2021; the goods purchased were included in the inventory at the end of
2020.
d. A sale of merchandise at the end of 2020 is not recorded until cash is received for the
goods in 2021; the goods sold were excluded from the inventory at the end of 2020.
e. Good shipped to consignee in 2020 were reported as sales; goods in hands of consignees
at the end of 2020 were not recognized for inventory purposes; sales of goods in 2021
and collection on such sales were recorded as credits to the receivables established with
consignee in 2020.

Please fill up the table below : (U = understated, O = overstated, N = no effect)

2020 2021
Balance Sheet I/S Balance Sheet I/S
Transaction
Net Net
Assets Liabilities Equity Assets Liabilities Equity
income income
a
b
c
d
e