AP-Correction of Error

Straight Problems

Problem 1
You were able to gather the following in connection with your audit of Ding Dong - Gwantes
Inc. for the year ended December 31,2019:
X  December 31,2018 12/31/2019
Accounts Receivable P 6,400,000 P4,000,000
1,000,00 2,500,0
Notes Receivable- Trade 0.00 00.00
380,0 450,
Allowance for Bad debts 00.00 000.00
Unpaid merchandise 4,632,00 2,621,0
invoice 0.00 00.00
85,0 125,
Accrued Wages 00.00 000.00
35,0 75,
Advertising Supplies 00.00 000.00
Inventory    
Accrued Advertising 14,2 40,
Expense 50.00 000.00
25,0
Prepaid Insurance 00.00 -
41,
Unexpired Insurance - 000.00
2,250,00 3,120,0
Merchandise Inventory 0.00 00.00 During the year:
11,000,00 15,000,0  Amount
Equipment, net 0.00 00.00 collected
from customer, P10,000,000 excluding a P100,000 collection from a previously written-
off account. Write-off of accounts receivables during the year amounted to P150,000.
 Sales returns (all prior to collections) amounted to P125,000 while sales discounts
granted to customers amounted to P300,000.
 Total payments to suppliers of merchandise amounted to P8,250,000. Purchase returns
(all prior to payments amounted to P300,000).
 Wages, Advertising and Insurance payments during the year were at P2,050,000,
P300,000 and P125,000 respectively.
 The only transaction apart from the depreciation for the year , affecting equipment’s net
book value was the equipment acquisition at the beginning of the year costing
P4,500,000.

Required:
1. Gross sales for 2019 under accrual basis.
2. Gross purchases for 2019 under accrual basis.
 3. Accrual wages for 2019.
4. Accrual Advertising Expense for 2019.
5. Accrual Basis net Income for 2019.

Problem 2
The following data are obtained from the single entry records kept by Ding Dong - Done Test
Merchandising for 2019:
December 31 January 1

Cash 1,600,000 1,200,000

Accounts receivable 2,000,000 1,600,000
Notes receivable 1,200,000 400,000
Equipment 960,000 1,600,000
Notes payable 1,120,000 1,200,000
Accounts Payable 480,000 720,000
Accounts Payable 1,040,000 1,200,000
Accrued Interest Payable 40,000 80,000
Unearned rent Income 40,000 120,000

The cashbook shows the following information:

Balance, January 1 1,200,000

Receipts:
Accounts Receivable (after discounts of P100,000) 3,000,000
Notes receivable 960,000
Cash Sales 800,000
Rent Income 80,000
Sale of equipment costing P200,000 120,000
and book value of P100,000
Additional cash investment by the owner 600,000 5,560,000

Payments:
Accounts Payable 1,520,000
Notes payable 1,280,000
Cash purchases 600,000
Interest Expense 160,000
Expenses 800,000
Equipment 400,000
Withdrawals by owner 400,000 5,160,000
Balance, December 31 P1,600,000

Audit Notes:
 Accounts receivable of P120,000 was written off as uncollectible.
  Returns of P320,000 were on merchandise sales.
 Allowances for P80,000 were received in merchandise purchases.

Required:
Determine the audited balances of the following:
1. Net Sales
2. Net Purchases
3. Cost of Sales
4. Rent Income
5. Interest expense
6. Depreciation expense
7. Net Income

Problem 3
When the records of Ding Dong- Godbless Merchandising Company were reviewed at the close
of 2019, the errors listed below were discovered.
1. For each item, indicate the effects of each of the following errors by writing O for
overstatement, U for understatement and X for no effect in the appropriate column.

  2018 2019
Re,
RE,befor Re, RE,befor after
N Ass Liabilit e after N Ass Liabilit e closin
  I et y closing closing I et y closing g

Failure to record purchases

of merchandise
on account of
P25,000 at the end of 2018.                    
Sale of merchandise on account
on
December 30,2018 amounting to
P20,000
was not recorded until the
customer
paid his account on january 2019.                    
Depreciation expense on
equipment
in 2018 was overstated by
P10,000.                    
Paid one year insurance premium
of
P24,00 effective April 1,2018.
The entire amount was debited to
expense account and no
adjustment
was made at the end of 2018.                    

On December 31,2018, the

Company acquired a parcel of
land
and a building at a total cost of
P500,000. The entire amount paid
was debited to land account. A
reasonable estimate of the cost
that should have been alocated to
the building was P200,000. The
building has an estimated life
of 20 years.                    
Failure to record supplies on hand
at the end of 2018. The supplies
on hand amounted to P5,000.                    
Understatement of 2018 ending
inventory worth P24,000.                    

Failure to record accrued interest

on notes payable at the end of
2018.Notes payable,principal
amount P100,000;interest rate,
10%;acquired March 31,2018.                    
Failure to recognize unearned rent
at the end of 2018 worth
P12,000.                    
Goods received in December
2018
were recorded as purchases when
paid in 2019. The goods were
excluded
from the 2018 ending inventory.                    

Problem 5
The income statement of Japhet Company for the years ended December 2018,2019,2020
indicate the following net income:
2018 170,000
2019 205,000
2020 186,000
An examination of the accounting records for three years indicates that several errors were made
in arriving at the net income amounts reported. The following errors were discovered.
a. Sale of merchandise on account amounting to 15,000 was not recorded at the end of
2019.
b. Goods costing P8,000 were in transit from a supplier on December 31,2018. The goods
were appropriately included in the ending inventory but the corresponding purchase was
not recorded.
c. Accrued salaries were consistently omitted from the records. The amounts omitted were:
2018 P10,000
2019 14,000
2020 16,000
d. The merchandise inventory at December 31,2019 was understated by P9,000 as the result
of errors made in the footings and extensions on inventory sheets.
e. Unexpired insurance of P12,000 applicable to 2019 was expensed in 2018.
f. Interest receivable of P2,400 was not recorded on December 31,2019.
g. On January 2,2019, a piece of equipment costing P40,000 was sold for P18,000. At the
date of sale, the equipment had an accumulated depreciation of P24,000. The cash
received was recorded as income in 2019. In addition, depreciation was recorded for this
equipment in both 2019 and 2020 at the rate of 10% of cost.
Required:
Compute the adjusted net income from 2018 to 2020.
 Problem#6
Multiple Choice Questions

Questions 1 through 5 are based on the following information:

Your audit of Ning Nong Nantes Company disclosed that your client kept very limited
records. Purchases of merchandise were paid for by check, but most other items were out
of cash receipts. The company’s collections were deposited weekly. No record was kept
of cash in the bank, nor was a record kept of sales. Accounts receivable were recorded
only by keeping a copy of ticket, and this copy was given to the customer when he paid
his account.
Additional information:
a. On January 2, 2019 Kuia Company started business and issued share capital, 72,000
shares with P100 par for the following considerations:
Cash P600,0000
Building(useful life, 15 years) 5,400,000
Land 1,800,000
P7,800,000
b. An analysis of the bank statements showed total deposits including the original cash
investment of P4,200,000. The balance in the bank statement on December 31, 2019
was P300,000 but there were checks amounting to P60,000 dated in December but
not paid by the bank until January 2020. Cash on hand on December 31,2019 was
P150,000 including customer’s deposit of P90,000.
c. During the year, Kuia borrowed P600,000 from the bank and repaid P150,000 and
P30,000 interest.
d. Disbursements paid in cash during the year were as follows:
Utilities P120,000
Salaries 120,000
Supplies 240,000
Dividends 180,000
P660,000
e. An inventory of merchandise taken on December 31,2019 showed P906,000 of
merchandise.
f. Tickets for accounts receivable totaled P1,080,000 but P60,000 of that amount may
prove uncollectible.
g. Unpaid suppliers invoices for merchandise amounted to P420,000.
h. Equipment with a cash price of P480,000 was purchased in early January on a one
year installment basis. During the year, checks for the down payment and all
maturing installments totaled P534,000. The equipment has a useful life of 5 years.

Required:
Based on the above and the result of your audit, determine the following: (disregard income
taxes)
1. Payment for merchandise purchases in 2019
a. P2,646,000 c. P2,436,000
b. P2,586,000 d. P3,246,000

2. Collections from sales in 2019

a. P3,720,000 c. P4,320,000
b. P3,000,000 d. P4,920,000
3. Net income for the year ended December 31,2019
a. P1,560,000 c. P1,770,000
b. P1,620,000 d. P960,000
4. Shareholders’ equity as of December 31, 2018
a. P9,180,000 c. P9,390,000
b. P9,240,000 d. P8,580,000
5. Total assets as of December 31, 2019
a. P9,540,000 c. P9,450,000
b. P9,583,200 d. P9,390,000