BM2015

NAME: DATE: SCORE:

ACTIVITY

Answer the following items on the space provided. Show your computations. (2 points for each correct
journal entry; 5 points for problem solving)

CASE 1 (1 item x 5 points)

The income statement of Louie Co. shows a net income of P250,000 for the year ended December 31, 20x2.
The following errors were discovered:

a. December 31, 20x1 inventory was understated by P55,000.

b. December 31, 20x2 inventory was overstated by P45,000.
c. A P20,000 customer’s deposit received in December 20x2, was credited to sales in 20x2. The goods
were actually shipped in January 20x3.

REQUIRED:
1. What is the corrected net income on 20x2? ____________

CASE 2 (3 items x 5 points)

The December 31 year-end financial statements of Elizabeth, Inc. contained the following errors:

December 31, 20x1 December 31, 20x2

Ending inventory P92,000 understated P81,000 overstated
Depreciation expense 23,000 understated -

An insurance premium of P660,000 was prepaid in 20x1, charging the years 20x1, 20x2, and 20x3. The entire
amount was charged to expense in 20x1. In addition, on December 31, 20x2, a fully depreciated machinery was
sold for P150,000 cash, but the sale was not recorded until 20x3. There were no other errors during 20x1 and
20x2, and no corrections have been made for any of the errors. Ignore income tax effects.

REQUIRED: Compute the amounts and indicate whether overstated or understated.

2. Total effect of the errors on Elizabeth’s 20x2 net income _____________
3. Total effect of the errors on Elizabeth’s working capital on December 31, 20x2 _____________
4. Total effect of the errors on Retained Earnings balance on December 31, 20x2 _____________

CASE 3 (7 items x 2 points)

The following selected accounts are included in the trial balance of Dreyfus Corp. on December 31, 20x2:

Debit Credit
Supplies on hand P270,000
Accrued salaries payable P150,000
Interest receivable 510,000
Prepaid insurance 9,000,000
Unearned rent -
Accrued interest payable 1,500,000

Additional information are as follows:

1. A physical count of supplies on hand on December 31, 20x2 totaled P110,000.
2. The accountant failed to adjust the Accrued Salaries Payable account. The accrued salaries payable
on December 31, 20x2 totaled P440,000.
3. The Interest Receivable account was also left unadjusted on December 31, 20x2. Accrued interest
receivable on December 31, 20x2 amounted to P435,000.

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 BM2015

4. The unexpired portions of the insurance policies totaled P6,500,000 as of December 31, 20x2.
5. A total of P2,800,000 was received on January 1, 20x2, for the rent of a building for both 20x2 and
20x3. The total amount received was recognized as revenue in 20x2.
6. The correct amount of depreciation for the year was P3,000,000 but was erroneously recorded as
P300,000.
7. Prior years’ depreciation was understated by P432,000.

REQUIRED: Prepare the necessary adjusting entries on December 31, 20x2. Assume that the books have not
been closed.

Rubric for grading:

CRITERIA POINTS
Correct accounts and amounts used. 3
Computed final amounts are correct and balanced. 2
TOTAL 5

06 Activity 1 *Property of STI

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