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You were engaged by Lanao Company 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 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 259,200 307,800 384,000 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 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 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?

You were engaged by Lanao Company 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 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 259,200 307,800 384,000 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 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 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?

Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter14: Activities Required In Completing A Quality Audit
Section: Chapter Questions
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You were engaged by Lanao Company 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 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 307,800 Salaries payable 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 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?
Transcribed Image Text:You were engaged by Lanao Company 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 2014 and 2015. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 12/31/15 12/31/14 P780,000 P873,600 213,000 307,800 Salaries payable 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 Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2014 net income? 2. What is the total effect of the errors on the 2015 net income? 3. What is the total effect of the errors on the company's working capital at December 31, 2015? 4. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2015?
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