Intermediate accounting by robles empleo ch 8 answers 2008

Chapter 8 – Errors and their Corrections
PROBLEMS
8-1
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
8.2

2007 net income
Understated
Overstated
Overstated
Understated
No effect
Overstated
No effect
Overstated
Overstated
Understated
Overstated

2008 net income
Overstated

Understated
Understated
Overstated
No effect
No effect
No effect
understated
Understated
Overstated
Understated

Jay Company

Understatement of 12/31/05 inventory
Overstatement of 12/31/06 inventory
Understatement of 2005 depreciation expense
3 year insurance premium charged to expense in
2005
Unrecorded sale of fully depreciated machine in
2006
Net understatement (overstatement)

Understatement (overstatement)
12/31/07
12/31/07
2007 Net
Worki
Reta
incom
ng

ined
e
Capita
Earn
l
ings
(48,000)
--(40,500)
(40,500)
(40,500)
--(11,500)
(110,000)
110,000
110,000
75,000

75,000

75,000

P(123,500)

P144,500

P133,000

8-3 Mark Company
Reported net income
Overstatement of 2006 ending inventory
Understated 2006 accrued expenses

Unrecognized supplies inventory
Corrected net income

2006
P195,000
( 36,000)
( 40,000)
_
P119,000

2007
P210,000
36,000
40,000
15,000
P301,,000

8-4 Jing, Inc.
Effect on 01/01/08Retained Earnings
Understated (Overstated)
Understated 2006 ending inventory
5,000
Overstated 2005 depreciation expense
12,500
Understated 2006 depreciation expense
( 4,000)
Net understatement in retained earnings
P13,500
Retained earnings as of January 1, 2007 should be increased by P13,500
8-5 Resort Company

(a)
a.
Prepaid insurance
Operating expenses
Retained earnings

9,300
3,100

41

12,400


Chapter 8 – Errors and their Corrections

b.

Retained Earnings
Trading Securities

16,750

16,750

Trading Securities
24,250
Unrealized Gains on Trading Securities
202,500 – 178,250 = 24,250
c.

Operating Expenses
Allowance for Bad Debts
98,000 – 92,500 = 5,500

d.

Retained earnings
Cost of goods sold

37,750

Cost of goods sold
Inventory

49,500

Machinery
Operating expenses
Retained earnings
Accumulated depreciation

75,000
6,250

e.

24,250

5,500

5,500

37,750
49,500

68,750
12,500

(b)
Reported net income
Adjustments: a.
b.
c.
d.

2006
P487,500
12,400
(16,750

2007
P550,000
( 3,100)
24,250
(5,500)
(37,750)
37,750
(49,500)
68,750

( 6,250)
P514,150
P547,650

e.
Corrected net income
8.6

Spade Company

2006
P145,000
(6,500)

Reported Net Income
(a)Rent income of 2007 recorded in 2006
(b)Omission of unused supplies
End of 2005
End of 2006
End of 2007
(c) Omission of accrued salaries
End of 2005
End of 2006
End of 2007
Corrected net income

8.7

Lily Corporation
Initial amounts

Adjustments: 1.
2.
3.
4.
5.
6.
7.

Inventory
P1,750,000
50,000
20,000
26,000
25,000
30,000
-

2007
P185,000
6,500

(6,500)
3,700
5,500
(7,500)
P133,700

Accounts Payable
P1,200,000
60,000

42

(3,700)
7,100
7,500
(4,700)
P197,700

Net Sales
P8,500,000
(35,000)
(40,000)
-


Chapter 8 – Errors and their Corrections
8.
Adjusted amounts

2,000
P1,903,000

4,000
P1,264,000

P8,425,000

MULTIPLE CHOICE
MC1

MC2
MC3
MC4
MC5
MC6

B
C
A
A
B
A

MC7
MC8

A
C

MC9

A

MC10
MC11
MC12
MC13
MC14
MC15

A
D
A
D
C
C

MC16
MC17
MC18
MC19
MC20
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31
MC32
MC33
MC34
MC35
MC36

B

B
D
B
C
D
A
A
A
D
D
A
A
A
C
D
C
C
D
D
D

MC37
MC38
MC39
MC40
MC41

D
D
B

C
A

MC42
MC42
MC43

B
A
D

200,000/5 = 40,000
30,000 over + 27,000 over + 7,500 over – 48,000 under = 16,500 net
overstatement.
27,000 over – 7,500 under – 48,000 under = 28,500 net understatement.
27,000 over + 6,000 over – 48,000 under – 7,500 under = 22,500 net
understatement.
250,000 – 100,000 + 150,000 – 50,000 – (30,000 x 4/6) + (120,000 x 18/24 =
320,000
1,550,000 + 10,000 – 80,000 + 120,000 – 55,000 – 100,000 = 1,445,000
312,500 + 25,000 - 4,000 – 50,000 – 18,000 – 30,000 = 235,500
10,000 – 8,000 = 2,000 net understated
10,000 + 25,000 – 8,000 = 27,000
2004 net income : 8,000 overstated – 2,000 understated ; 2005 net income
8,000 understated – 2,000 overstated.
2,300,000 + 60,000 – 40,000 – 50,000 + 100,000 = 2,370,000
10,000 – 7,700
258,000 – 7,700
589,500 – 112,500 – 16,000
613,400 + 90,000 + 12,000 – 28,000

20,000 + 13,500 – 8,000
The shares are treasury shares.

300,00 – 80,000
60,000 – 4,000 – 12,000
434,900 + 12,000
60,000 + 15,000
1,500,000 X 12% x 3/12

Retained earnings beginning of 430,000 as reported – correction of prior period
errors of P 20,500 ( - 36,000 + 31,500 – 16,000) + 2007 corrected net income
of 298,800
2,500,000 – 112,500 – 50,000 – 80,000
1,300,000 – 90,000 – 36,000 + 28,000
500,000 + 7,700 + 30,000 + 18,000 + 8,000 – 4,000 – 16,000 + 15,000
80,000 + 18,000 + Accrued interest of 150,000 * ( although finance costs
should be presented separately, as required by PAS 1, total interest cost
included in other losses and expenses is 190,000); thus, other losses and
expenses = 248,000 – 190,000 = 58,000
30,000 – 4,000
20,000 + 31,500
75,000 + 16,000

43


Chapter 8 – Errors and their Corrections
MC44
MC45
MC46

B
A
C

430,000 – 36,000 + 31,500 – 16,000
950,000 + 36,000
Errata: The question should have been the adjusted amount of 2006 expenses
instead of 2004 expenses ; 450,000 – 31,500 + 16,000

Correcting entries in 2007 for Take One Corporation (MC 17 – 47)
Operating Expenses
Cash

7,700

7,700

Sales

112,500
Accounts receivable
112,500

Inventories
Cost of Sales

90,000
90,000

Allowance for Bad Debts
Accounts Receivable
Operating Expenses
Allowance for Bad Debts
30,000

16,000
16,000
30,000

Inventories
Accounts Payable
12,000

12,000

Retained Earnings
Cost of Sales

36,000
36,000

Cost of Sales
Inventories

28,000
28,000

Treasury Stock
Investments in Stock

260,000

260,000

Operating Expenses
Prepaid Expenses
Retained Earnings
31,500

18,000

Operating Expenses
Prepaid Expenses
8,000

8,000

13,500

Accumulated Depreciation – Equipment
Operating Expenses

4,000
4,000

Sales
Accumulated Depreciation – Equipment
Loss on Sale of Equipment
Equipment

50,000
12,000
18,000
80,000

Interest Expense (Other Losses and Expenses)
Interest Payable
150,000
Mortgage Payable
Current Portion of Mortgage Payable

44

150,000

500,000
500,000


Chapter 8 – Errors and their Corrections
Retained Earnings
Operating Expenses

16,000
16,000

Operating Expenses
Accrued Expenses
15,000

15,000

Sales

80,000
Advances from Customers
80,000

Working Paper adjustments to restate 2006 financial statements
Cost of Sales
36,500
Inventory
Prepaid expenses
Operating Expenses

36,500
31,500
31,500

Operating Expenses
Accrued Expenses
16,000

16,000

Mortgage Payable
Current Portion of Mortgage Payable

45

500,000
500,000