PROBLEM:During your examination of the accounting books of South Sky Company for the year ended December 31, 2022 revealed the following errors:1. Unrecorded unpaid salaries at the end of 2021 and 2022 were P 100,000 and P 140,000, respectively.2. The following errors were discovered in the audit of inventory at December 31, 2021: (a) over footing, P 220.000: (b) Under extension, P 30,000.3. Unexpired insurance of P 120,000 for the year 2023 was expensed in 2022.4. Unrecorded interest receivable at the end of 2023, P 20,000.5. The proceeds of P 220,000 from sale of a machinery with a cost of P 400,000 was credited to Miscellaneous Income on January 1, 2022. The machinery was 60%depreciated on the date of sale. Depreciation for 2022 was recorded at the rate of 10%The reported net income at the end of 2021 and 2022 were P 1.750,000 and P 2.000.000, respectively.QUESTIONS:1. What is the correct net income for the year 2021?2. What is the correct net income for the year 2022?

Here we audited accounts of F.Y 2022 and we found errors for 2021 and 2022 .…

Answered: he accounting books of South Sky…

Business

Accounting

he accounting books of South Sky Company for the year ended December 31, 2022 revealed the following errors: Inrecorded

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 71BPSB

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Suppose that an audit of Prime Sports Gear encountered the following two errors: a. Inventory totaling 4,500 should have been written off as worthless at the end of the year. Year-end inventory should be only 195,600. Net income is reduced to 117,110. b. Checks totaling 20,000 for some of the salaries payable at year-end had in fact been written and mailed out on December 31, 2013. Thus, both the cash account and the salaries payable account are overstated at year-end. Correct both errors on the worksheet. Save your completed file as CASHFLOW4. Print the worksheet when done. What impact did each of these adjustments have on cash flow for 2013?
Tanke Company reported net income on the year-end financial statements of $850,200. However, errors in inventory were discovered after the reports were issued. If inventory was overstated by $21,000, how much net income did the company actually earn?
Inventory Valuation You are engaged in an audit of Roche Mfg. Company for the year ended December 31, 2019. To reduce the workload at year-end, Roche took its annual physical inventory under your observation on November 30, 2019. Roches inventory account, which includes raw materials and work in process, is on a perpetual basis, and it uses the first-in, first-out method of pricing. It has no finished goods inventory. The companys physical inventory revealed that the book inventory of 60,570 was understated by 3,000. To avoid distorting the interim financial statements, Roche decided not to adjust the book inventory until year-end except for obsolete inventory items. Your audit revealed this information about the November 30 inventory: Pricing tests showed that the physical inventory was overpriced by 2,200. Footing and extension errors resulted in a 150 understatement of the physical inventory. Direct labor included in the physical inventory amounted to 10,000. Overhead was included at the rate of 200% of direct labor. You determined that the amount of direct labor was correct and the overhead rate was proper. The physical inventory included obsolete materials recorded at 250. During December, these materials were removed from the inventory account by a charge to cost of sales. Your audit also disclosed the following information about the December 31, 2019, inventory. Total debits to certain accounts during December are: The cost of sales of 68,600 included direct labor of 13,800. Normal scrap loss on established product lines is negligible. However, a special order started and completed during December had excessive scrap loss of 800 which was charged to Manufacturing Overhead Expense. Required: 1. Compute the correct amount of the physical inventory at November 30, 2019. 2. Without prejudice to your solution to Requirement 1, assume that the correct amount of the inventory at November 30, 2019, was 57,700. Compute the amount of the inventory at December 31,2019.
Shannon Corporation began operations on January 1, 2019. Financial statements for the years ended December 31, 2019 and 2020, contained the following errors: In addition, on December 31, 2020, fully depreciated machinery was sold for 10,800 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020? a. working capital overstated by 4,200 b. working capital understated by 5,800 c. working capital understated by 6,000 d. working capital understated by 9,800
At the end of 2019, Manny Company recorded its ending inventory at 350,000 based on a physical count. During 2020, the company discovered that the correct inventory value at the end of 2019 should have been 400,000 because it made a counting error. Upon discovery of this error in 2020, what correcting journal entry will Manny make? Ignore income taxes.
Shetland Company reported net income on the year-end financial statements of $125,000. However, errors in inventory were discovered after the reports were issued. If inventory was understated by $15,000, how much net income did the company actually earn?
If Barcelona Companys ending inventory was actually $122,000, but the cost of consigned goods, with a cost value of $20,000 were accidentally included with the company assets, when making the year-end inventory adjustment, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?
Company Edgar reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 12,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?
Refer to the information in E22-13. Required: Prepare the correcting journal entries if the company discovers each error 2 years after it is made and it has closed the books for the second year. Ignore income taxes. E22-13: The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-vear life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest.
Gross Profit Shelly Corporation is an importer and wholesaler. Its merchandise is purchased from several suppliers and is warehoused by Shelly until sold to consumers. In conducting her audit for the year ended June 30, 2019, the corporations CPA determined that the system of internal control was good. Accordingly, she observed the physical inventory at an interim date, May 31, 2019, instead of at year-end. The CPA obtained the following information from the general ledger: The CPAs audit disclosed the following information: Required: In audit engagements in which interim physical inventories are observed, a frequently used auditing procedure is to test the reasonableness of the year-end inventory by the application of gross profit ratios. Prepare in good form the following schedules: 1. Computation of the gross profit ratio for 11 months ended May 31, 2019 2. Computation by the gross profit ratio method of cost of goods sold during June 2019 3. Computation by the gross profit ratio method of June 30, 2019 inventory
Effects of an Error in Ending Inventory Waymire Company prepared the partial income statements presented below for 2019 and 2018. During 2020, Waymires accountant discovered that ending inventory for 2018 had been understated by $6,500. Required: 1. Prepare corrected income statements for 2019 and 2018. 2. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item (ignore the effect of income taxes). Indicate whether each error is an overstatement (+) or an understatement (-).
Effects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in 2019 appear below. During 2019, Graul discovered that the 2017 ending inventory had been misstated due to the following two transactions being recorded incorrectly. a. A purchase return of inventory costing $42,000 was recorded twice. b. A credit purchase of inventory' made on December 20 for $28,500 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on December 22, 2017. Required: 1. Was ending inventory for 2017 overstated or understated? By how much? 2. Prepare correct income statements for all 3 years. 3. CONCEPTUAL CONNECTION Did the error in 2017 affect cumulative net income for the 3-year period? Explain your response. 4. CONCEPTUAL CONNECTION Why was the 2019 net income unaffected?