EFFECTS OF ERRORS ON PROFIT
DESCRIPTION OF ERROR a. b. c. d. e. f. g. h. i. j. k. l. m.
2014 Understated Overstated Overstated No effect Understated Understated No effect Overstated No effect Overstated Overstated Understated Overstated
2015 Overstated Understated Understated No effect Overstated Overstated No effect Understated No effect Understated Understated Overstated Understated
JOY COMPANY
Understatement of 12/31/2014 inventory Overstatement of 12/31/2015 inventory
₱ ₱
Understatement of 12/31/2014 depreciation expense 3-year insurance premium charged to expense in 2014 Unrecorded sale of machine in 2015 Net understatement (overstatement)
UNDERSTATEMENT (OVERSTATEMEN PROFIT (148,000.00) (140,500.00) -
₱ ₱ ₱
(120,000.00) 75,000.00 (333,500.00)
UNDERSTATEMENT (OVERSTATEMENT) 2015 WORKING CAPITAL RETAINED EARNINGS ₱ (140,500.00) ₱ (140,500.00) ₱ ₱ ₱
₱
(11,500.00)
120,000.00 ₱ 75,000.00 ₱ 54,500.00 ₱
120,000.00 75,000.00 43,000.00
TOY COMPANY
₱
2015 210,000.00
₱
(36,000.00) ₱
36,000.00
₱
(40,000.00) ₱
40,000.00
₱ ₱
15,000.00 301,000.00
Reported profit
₱
Inventory overstatement at year-end, 2014 Accrued expenses not recognized at year-end, 2014 Supplies inventory not recorded ar year-end, 2015 Corrected profit
₱
2014 295,000.00
219,000.00
BOY INC. EFFECT ON 12/31/15 RETAINED EARNINGS
Overstated 2014 inventory Overstated 2014 depreciation expense Understated 2015 inventory Understated 2015 depreciation expense Increase in retained earnings, 12/31/15
UNDERSTATED (OVERSTATEMENT) ₱ 12,500.00 ₱ 5,000.00 ₱ (4,000.00) ₱ 13,500.00
COY COMPANY DATE 2015 Dec. 31 a
DESCRIPTION CORRECTING ENTRIES OPERATING EXPENSE PREPAID INSURANCE RETAINED EARNINGS
b
FINANCIAL ASSETS THROUGH PROFIT OR LOSS RETAINED EARNINGS UNREALIZED GAIN ON FINANCIAL ASSETS-FVPL
c.
OPERATING EXPENSES ALLOWANCE FOR BAD DEBTS [(980,000*10%)-92,500]
d.
RETAINED EARNINGS COST OF GOODS SOLD INVENTORY
e.
MACHINE OPERATING INCOME ACCUMULATED DEPRECIATION- MACHINE RETAINED EARNINGS
DEBIT
CREDIT
3,100 9,300 12,400
7,500 16,750 24,250 5,500 5,500
37,750 11,750 49,500 75,000 6,250 12,500 68,750
UNADJUSTED PROFIT ADJUSTMENTS: A B C D E CORRECTED PROFIT
2014 487,500 12400 -16750 -37750 68750 445,400
2,015 550,000 (3,100) 24,250 (5,500) (11,750) (6,250) 547,650
SOY COMPANY
UNADJUSTED PROFIT ADJUSTMENTS: RENT REVENUE REVENUE FOR 2015 RECOGNIZED IN 2014 UNRECORDED OFFICE SUPPLIES INVENTORIES AT YEAR-END UNRECORDED ACCRUED SALARIES AT YEAR-END ACCRUED COMMISSIONS ADJUSTED PROFIT
2014 145,000 (65,000) (6,500) 3,700 5,500 (7,500) (12,000) 9,000 72,200
2015 185,000 6,500 (3,700) 7,100 7,500 (4,700) (9,000) 15,000 203,700
FELLOW COMPANY DATE 2015 Dec. 31 a
b
c.
d.
DESCRIPTION CORRECTING ENTRIES
DEBIT
EQUIPMENT OPERATING INCOME
120,000
PROFIT FOR SELF-CONSTRUCTION WAREHOUSE
500,000
DEPRECIATION EXPENSE ACCUMULATED DEPRECIATION-MACHINE
CASH ACCUMULATED DEPRECIATION-MACHINE GAIN ON SALE OF MACHINE MACHINE
CREDIT
120,000
500,000
20,000 20,000
60,000 150,000 30,000 180,000
DOY CORPORATION
INITIAL AMOUNTS ADJUSTMENTS: INCREASE(DECREASE) 1 2 3 4 5 6 7 8 ADJUSTED AMOUNTS
INVENTORY 1,750,000
50,000 20,000 26,000 25,000 30,000 2,000 1,903,000
ACCOUNTS PAYABLE 1,200,000
NET SALES 8,500,000 (35,000)
50,000 (40,000)
60,000 4,000 1,314,000
8,425,000
(1) Schedule to correct the reported profit Reported profit (loss) Nature of errors: a. Failed to record accrued expenses.
b.
Overstated ending inventories.
c.
Failed to record accrued interest on notes receivable.
d.
Failed to recognize unearned rent.
e.
Failed to record purchases on account, purchases were recorded when paid in the subsequent year, merchandise properly included in end inventory. Repairs and maintenance incurred during the year capitalized as part of asset cost. Full year depreciation at an annual rate of 10% is provided in the year that the asset is recognized. Failed to recognize prepaid insurance at year end.
f.
g.
CORRECTED PROFIT
2013 490,000 (34,000)
(63,000)
12,000
(24,000)
4,800
385,800
2014 670,000 34,000 (28,000) 63,000 (28,000) (12,000) 6,000 24,000 (20,000)
No effect
2015 (320,000)
DATE 2014 DEC 31 a
RETAINED EARNINGS
b
RETAINED EARNINGS
c
INTEREST RECEIVABLE INTEREST REVENUE
d
RETAINED EARNINGS
e
COST OF SALES
f
OPERATING EXPENSES ACCUMULATED DEPRECIATION
g
PREPAID INSURANCE
28,000 (43,000) 28,000 (36,000) (6,000) 8,000 20,000 18,000 No effect
(120,000) (80,000) (4,800) 6,200 590,400
(6,200) 7,800 (381,400)
DESCRIPTION CLOSING ENTRIES
DEBIT
RETAINED EARNINGS ACCRUED ACCOUNTS PAYABLE OPERATING EXPENSE
34,000
RETAINED EARNINGS INVENTORIES COST OF SALES
63,000
INTEREST RECEIVABLE INTEREST REVENUE RETAINED EARNINGS
28,000 4,000
28,000 35,000 6,000 6,000 12,000
RETAINED EARNINGS UNEARNED RENT RENT REVENUE
24,000
COST OF SALES ACCOUNTS PAYABLE
25,000
OPERATING EXPENSES ACCUMULATED DEPRECIATION CAPITALIZED ASSET PREPAID INSURANCE OPERATING EXPENSE RETAINED EARNINGS
CREDIT
20,000 4,000
25,000 108,000 12,000 120,000 6,200 1,400 4,800
