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You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other errors for each year were summarized: 12-31- 2021 12-31- 2020 Salaries Payable 780,000 873,600 Interest Receivable 213,000 259,200 Prepaid Insurance 307,800 384,000 Advances from Customers 561.000 470,400 (Collections from customers had been recorded as soles but should have been recognized as advances from customers becouse goods were not shipped until the following year) Machinery 522,000 564,000 (Copital 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%)

You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other errors for each year were summarized: 12-31- 2021 12-31- 2020 Salaries Payable 780,000 873,600 Interest Receivable 213,000 259,200 Prepaid Insurance 307,800 384,000 Advances from Customers 561.000 470,400 (Collections from customers had been recorded as soles but should have been recognized as advances from customers becouse goods were not shipped until the following year) Machinery 522,000 564,000 (Copital 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%)

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 10MC: Shannon Corporation began operations on January 1, 2019. Financial statements for the years ended...
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1. What is the total effect of the errors on the 2020 net income?

a. Overstated by P80,400
b. Understated by P775,800
c. none of the choices
d. Understated by P1,236,600
e. Overstated by P165,000

 

2. What is the total effect of the errors on the balance of the company's retained earnings at December 31. 20217


a. Understated by P155,100
b. none of the choices
c. Understated by P265,800
d. Overstated by P930,900
e. Overstated by P885,900

 

You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other errors for each year were summarized: 12-31- 2021 12-31- 2020 Salaries Payable 780,000 873,600 Interest Receivable 213,000 259,200 Prepaid Insurance 307,800 384,000 Advances from Customers 561.000 470,400 (Collections from customers had been recorded as soles but should have been recognized as advances from customers becouse goods were not shipped until the following year) Machinery 522,000 564,000 (Copital 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%)
Transcribed Image Text:You were engaged by DIANE Company to audit its financial statements for the first time. In examining the books, you noted that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other errors for each year were summarized: 12-31- 2021 12-31- 2020 Salaries Payable 780,000 873,600 Interest Receivable 213,000 259,200 Prepaid Insurance 307,800 384,000 Advances from Customers 561.000 470,400 (Collections from customers had been recorded as soles but should have been recognized as advances from customers becouse goods were not shipped until the following year) Machinery 522,000 564,000 (Copital 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%)
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