CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

SINGLE ENTRY AND ERROR CORRECTION

1. An entity provided the following increases in account balances that occurred during the current year:
Assets 8,900,000
Liabilities 2,700,000
Share capital 6,000,000
Share premium 500,000
Except for a P1,300,000 dividend payment, the current year net income and a P200,000 prior period error
from understatement of ending inventory, there were no other changes in retained earnings for the year.
What amount should be reported as net income for the current year?
a. 1,200,000
b. 1,000,000
c. 800,000
d. 900,000
2. On January 1, an entity showed total assets of P5,000,000, total liabilities of P2,000,000 and contributed
capital of P2,000,000. During the current year, the entity issued share capital of P500,000 par value at a
premium of P300,000. Dividend of P250,000 was paid on December 31. On December 31, total assets
amounted to P7,500,000 and total liabilities amounted to P3,200,000. What amount should be reported
as net income for the current year?
a. 1,750,000
b. 1,000,000
c. 750,000
d. 500,000
3. An entity revealed the following transactions during the current year:
* An adjustment of retained earnings for prior year overdepreciation 100,000
* Gain on sale of treasury shares 300,000
* Dividend declared, of which P400,000 was paid 600,000
* Net income for current year 800,000
The entity reported shareholders’ equity of P5,000,000 at year-end. Share capital beginning P3,000,000
remained unchanged. What is the beginning balance of retained earnings?
a. 1,400,000
b. 1,700,000
c. 1,200,000
d. 1,500,000
4. An entity revealed the following changes in the accounts for the current year:
Cash 1,500,000 Increase
Accounts receivable, net of allowance 3,500,000 Increase
Investments 1,000,000 Decrease
Inventory 3,900,000 Increase
Equipment 3,000,000 Increase
Accounts payable 800,000 Decrease
Bonds payable 2,000,000 Increase
Accrued interest payable 200,000 Decrease
During the current year, the entity issued 100,000 ordinary shares of P20 par value for P30 per share.
Dividend of P1,500,000 was paid in cash during the year. Equipment with fair value of P2,000,000 was
donated by a shareholder during the year. What amount should be reported as net income for the current
year?
a. 6,000,000
b. 6,400,000
c. 8,400,000
d. 7,000,000

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5. During the course of an audit of the financial statements of an entity for the year ended December 31,
2022 the following data are discovered:
• Inventory on January 1, 2022 had been overstated by P300,000.
• Inventory on December 31, 2022 was understated by P500,000.
• An insurance policy covering three years had been purchased on January 1, 2021 for P150,000.
The entire amount was charged as an expense in 2021.
During 2022, the entity received a P100,000 cash advance from a customer for merchandise to be shipped
during 2023. The amount had been credited to sales revenue in 2022. The gross profit on sales is 40%.
Net income per book was P2,000,000 for 2022. What amount should be reported as net income in 2022?
a. 2,650,000
b. 2,350,000
c. 1,650,000
d. 2,050,000
6. An entity had determined the 2022 net income to be P5,000,000. In a first time audit of the financial
statements, the following errors were discovered:
* Merchandise inventory was incorrectly determined – P50,000 overstatement for 2021 and P150,000
overstatement for 2022.
* Revenue received in advance in 2021 of P300,000 was credited revenue when received. Of the total,
P50,000 was earned in 2021, P200,000 in 2022 and the remainder in 2023.
* P400,000 gain on sale of equipment in 2022 was erroneously credited to retained earnings.
What amount should be reported as corrected net income for 2022?
a. 5,500,000
b. 5,450,000
c. 5,400,000
d. 5,550,000
7. An entity reported the following errors:
December 31, 2022 December 31, 2023
Ending inventory 950,000 overstated 800,000 understated
Depreciation 250,000 overstated
An insurance premium of P600,000 was prepaid in 2022 covering the years 2022, 2023 and 2024. The
entire amount was charged to expense in 2022. What is the total effect of the errors on retained earnings
on December 31, 2023?
a. 1,550,000 understated
b. 1,550,000 overstated
c. 1,250,000 understated
d. 1,250,000 overstated
8. An entity began operations on January 1, 2022. The following errors were discovered:
2022 2023
Ending inventory 200,000 understated 150,000 overstated
Depreciation expense 50,000 understated
Insurance expense 100,000 overstated 100,000 understated
Prepaid insurance 100,000 understated
Accrued rent expense 300,000 understated
In addition, on December 31, 2023, a fully depreciated equipment was sold for P100,000 cash but the
sale was not recorded until 2024.
1. What is the net effect of the errors on retained earnings on December 31, 2023?
a. 650,000 understated
b. 650,000 overstated
c. 400,000 understated
d. 400,000 overstated
2. What is the net effect of the errors on working capital on December 31, 2023?
a. 350,000 overstated
b. 350,000 understated
c. 400,000 understated
d. 400,000 overstated
End
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