The December 31, 2023, adjusting entry to correct the expensing of insurance premium paid is
Spiceland Corporation is in the process of obtaining a loan at City Bank. The bank has requested audited financial statements. Spiceland’s financial statements have never been audited before. It has prepared the following comparative financial statements for the years ended December 31, 2023, and 2022.
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Spiceland Corporation Comparative For the Years Ended December 31, 2023 and 2022 |
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Current assets: |
2023 |
2022 |
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Cash and cash equivalents |
1,205,000 |
800,000 |
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Accounts receivable |
1,960,000 |
1,480,000 |
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Allowance for |
(185,000) |
(90,000) |
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Inventory |
1,035,000 |
1,010,000 |
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Total current assets |
4,015,000 |
3,200,000 |
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Noncurrent assets: |
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Property, plant and equipment |
835,000 |
847,500 |
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(608,000) |
(532,000) |
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Total noncurrent assets |
227,000 |
315,500 |
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Total assets |
4,242,000 |
3,200,000 |
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Liabilities: |
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Accounts payable |
607,000 |
980,500 |
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Shareholders equity: |
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Ordinary, P20 par; 150,000 shares authorized; 65,000 shares issued and outstanding |
1,300,000 |
1,300,000 |
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2,335,000 |
1,235,000 |
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Total shareholders’ equity |
3,635,000 |
2,535,000 |
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Total liabilities and shareholders’ equity |
4,242,000 |
3,515,500 |
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Spiceland Corporation Comparative Income Statements For the Years Ended December 31, 2023 and 2022 |
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Sales |
5,000,000 |
4,500,000 |
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Cost of goods sold |
2,150,000 |
1,975,000 |
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Gross income |
2,850,000 |
2,525,000 |
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Operating expenses: |
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Selling expenses |
1,150,000 |
1,025,000 |
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Administrative expense |
600,000 |
525,000 |
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Total operating expenses |
1,750,000 |
1,550,000 |
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Net income |
1,100,000 |
975,000 |
The 2023 audit reveled the following facts:
- On January 5, 2022, Spiceland Corporation had charged a 5-years insurance premium to expense. The premium totaled P31,000.
- The amount of loss due to bad debts had steadily decreased over the last 2 years. Spiceland Corporation has decided to reduce the amount of bad debt expense from 2% to 1.5% of sales, beginning with 2023. (a charge of 2% has already been made for 2023.)
- Spiceland Corporation uses the periodic inventory system. The following are the inventory errors for the last 2 years:
2022 – ending inventory overstated by P75,500.
2023 – ending inventory overstated by P99,000.
- An equipment costing P150,000 was acquired on January 3, 2022. The purchase was recorded by a charged to operating expense. The equipment has a useful life of 10 years and a residual value of P25,000. Spiceland Corporation uses the
straight line method in depreciating its assets.
- Assume that the books for 2023 have not yet been closed. Ignore tax implications.
Questions:
The December 31, 2023,
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