You were engaged by CPA Co. to audit its financial statements for the first time. In ex: you found out that certain adjustments had been overlooked at the end of 2019 and 20 discovered that other items had been improperly recorded. These omissions and othe year are summarized below: 12/31/2020 12/3 P780,000 Salaries payable Interest receivable Prepaid insurance Advances from customers (collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not 213,000 307,800

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Problem 8
You were engaged by CPA Co. to audit its financial statements for the first time. In examining the books,
you found out that certain adjustments had been overlooked at the end of 2019 and 2020. You also
discovered that other items had been improperly recorded. These omissions and other failures for each
year are summarized below:
12/31/2020
12/31/2019
Salaries payable
P780,000
213,000
307,800
P873,600
Interest receivable
259,200
384,000
Prepaid insurance
Advances from customers (collections from customers had
been recorded as sales but should have been recognized
as advances from customers because goods were not
shipped until the following year)
Machinery (capital expenditures had been recorded as
repairs but should have been charged to Machinery; the
depreciation rate is 10% per year, but depreciation in the
year of expenditure is to be recognized at 5%)
561,000
470,400
522,000
564,000
Required: Based on the above and the result of your audit, determine the following: (Ignore income tax
effect and write under or over)
_1. Net effect of the errors on the 2019 profit
2. Net effect of the errors on the 2020 profit
_3. Net effect of the errors on CPA's December 31, 2020 Retained Earnings
Transcribed Image Text:Problem 8 You were engaged by CPA Co. to audit its financial statements for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2019 and 2020. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/2020 12/31/2019 Salaries payable P780,000 213,000 307,800 P873,600 Interest receivable 259,200 384,000 Prepaid insurance Advances from customers (collections from customers had been recorded as sales but should have been recognized as advances from customers because goods were not shipped until the following year) Machinery (capital expenditures had been recorded as repairs but should have been charged to Machinery; the depreciation rate is 10% per year, but depreciation in the year of expenditure is to be recognized at 5%) 561,000 470,400 522,000 564,000 Required: Based on the above and the result of your audit, determine the following: (Ignore income tax effect and write under or over) _1. Net effect of the errors on the 2019 profit 2. Net effect of the errors on the 2020 profit _3. Net effect of the errors on CPA's December 31, 2020 Retained Earnings
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