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Jan 4, 2025
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New Era UniversityCollege of AccountancyName: ____________________________________Block: _______________________ Score: ________Intermediate Accounting IIIQuiz 6: Error Correction & Interim Financial ReportingI.Theories:Write the letter of the correct answer. (10 points)1.For interim financial reporting, a loss from flash flood occurring in the third quarter should be:a.Recognized in the third quarterb.Disclosed by a note only in the third quarterc.Recognized equally during the third and fourth quartersd.Deferred and recognized during the last quarter of the year2.Which statement in relation to an interim financial report is true?a.An interim financial report must consist of a complete set of financial statementsb.An interim financial report must consist of a condensed set of financial statementsc.An interim financial report may consist of a condensed set or complete set of financial statementsd.All of these statements are true3.Interim financial statements are usually presented on a:a.Monthly basisb.Quarterly basisc.Semiannual basisd.Nine-month basis4.Advertising costs incurred shall be deferred to provide an appropriate expense in each period for:a.Interim reportingb.Year-end reportingc.Interim reporting and year-end reportingd.Neither interim reporting nor year end reporting5.Conceptually, interim financial statements can be described as emphasizing:a.Timeliness over reliabilityb.Reliability over relevancec.Relevance over comparabilityd.Comparability over neutrality6.For interim reporting, an inventory loss from a market decline in the third quarter shall be recognized as a loss:a.In the fourth quarterb.Proportionately in each of the third and fourth quartersc.Proportionately in each of the first, second, third and fourth quartersd.In the third quarter7.For interim reporting, an expropriation loss occurring in the second quarter shall be:a.Recognized ratably over the last three quartersb.Recognized ratably over all four quarters with the first quarter being restatedc.Recognized in the second quarterd.Disclosed in the second quarter8.An inventory loss from a market price decline occurred in the first quarter. However, in the third quarter, the inventory had a market pricerecovery that exceeded the market decline that occurred in the first quarter. For interim financial reporting, the amount of inventoryshould:a.Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of themarket price recoveryb.Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount ofdecrease in the first quarterc.Not be affected in the first quarter and increase in the third quarter by the amount of the market price recoveryd.Not be affected in either the first quarter or the third quarter9.Which statement is incorrect regarding interim financial reporting?a.A complete set of financial statements at the interim reporting date is requiredb.Interim amount like advertising that could benefit later interim periods is expensed immediatelyc.The integral and independent view are the two approaches of interim financial reportingd.No accruals or deferrals in anticipation of future events during the year should be reported
10. Due to a decline in market price in the second quarter, an entity incurred inventory loss. The market price is expected to return to itsprevious level by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in theinterim income statement?a.Ratably over the second, third, and fourth quartersb.Ratably over the third and fourth quartersc.In the second quarterd.In the fourth quarterII.Identification:Indicate how the error will affect the current year’s net income by writing “O” if the effect on the column is overstated, “U”if it is understated, “NE” if no effect (10 points)ERRORSEFFECT ON CURRENTYEAR’S NET INCOME1.Failure to record a sale on account for P80,000.U2.The inventory was miscounted at year-end and overstated by P5,000.O3.The company failed to record depreciation expense of P3,500 for the year.O4.The company receives a utility bill for P400 on December 29, but fails to record the bill.O5.The company failed to record a prepaid insurance of P500U6.Failure to accrue wages of P17,000 at the end of the year.O7.Deferred income was overstated by P20,000 at the end of the year.U8.Purchases was overstated by P5,000U9.Failure to record purchases of P15,000O10.Beginning inventory was overstated by P10,000UIII.Problems:Write the letter of the correct answer. (40 points)Use the following information for the next two (2) questions:Jindo Company reported profits of P4,000,000 and P8,000,000 in 2021 and 2022, respectively. In 2023, the following prior period errors werediscovered:○The inventory on December 31, 2021 was understated by P200,000.○An equipment with an acquisition cost of P1,200,000 was erroneously charged as expense in 2021. The equipment has an estimateduseful life of 5 years with no residual value. Jindo Company provides full year depreciation in the year of acquisition.The unadjusted balances of retained earnings are P8,800,000 and P16,800,000 as of December 31, 2021 and 2022, respectively.1.How much is the correct profit in 2021?a.P7,560,000b.P5,610,000c.P5,160,000d.P 4,760,0002.How much is the correct retained earnings in 2022?a.P18,420,000b.P17,520,000c.P9,960,000d.P9,860,000Use the following information for the next four (4) questions:Lakeland Company reported profits of P1,600,000 and P2,400,000 in 2021 and 2022, respectively. In 2023, the following prior perioderrors were discovered:○Prepaid supplies in 2021 were overstated by P80,000.○Accrued salaries payable in 2021 were understated by P160,000.○Repairs and maintenance expenses in 2021 amounting to P400,000 were erroneously capitalized and being depreciated over a periodof 4 years.The unadjusted balances of retained earnings are P6,400,000 and P8,800,000 as of December 31, 2021 and 2022, respectively.3.How much is the correct profit in 2021?a.P1,720,000b.P1,610,000c.P1,060,000d.P1,006,0004.How much is the correct profit in 2022?a.P2,740,000b.P2,704,000c.P2,610,000d.P2,160,000
5.How much is the correct retained earnings in 2021?a.P5,860,000b.P5,806,000c.P5,520,000d.P5,420,0006.How much is the correct retained earnings in 2022?a.P8,960,000b.P8,860,000c.P8,600,000d.P8,420,0007.The following information relates to the Patricia Company:○2024 cash dividends declaredP400,000○Unadjusted (reported) retained earnings, January 1, 2024?○2024 net incomeP480,000○Error in 2023, understatement of ending inventory, error found in 2024 (before closing the books)P150,000○Unadjusted (reported) retained earnings, December 31, 2024P1,400,000What is the restated January 1, 2024, balance of retained earnings?a.P1,170,000b.P1,320,000c.P1,470,000d.P1,630,0008.Wirehair Company's statements for 2021 and 2022 included the following errors:December 31, 2021 inventory understatedP2,000,000December 31, 2022 inventory overstatedP1,000,000Depreciation for 2021 understatedP400,000Depreciation for 2022 overstatedP800,000How much should retained earnings be retroactively adjusted on January 1, 203?a.P1,400,000 increaseb.P1,400,000 decreasec.P600,000 increased.P600,000 decreaseUse the following information for the next three (3) questions:The income statement of Scout Company for the year ended December 2015, 2016 and 2017 indicated the following net incomes:2021 - P120,0002022 - P185,0002023 - P150,000An examination of the accounting records for these years indicates that several errors were made in arriving at the net income amountsreported. The following errors were discovered:●Accrued interests on notes receivable were consistently omitted from the records. The interests were received in thesucceeding year. The amounts omitted were:2021 - P10,0002022 - P14,0002023 - P16,000●The merchandise inventory at December 31, 2022 was overstated by P9,000 as the result of errors made in the footings andextensions on the inventory sheets.●Unexpired insurance of P12,000 applicable to 2023 was expensed in 2022.●Accrued utilities of P2,000 was not recorded on December 31, 2021. This was paid in 2022.●On January 2, 2022, a piece of equipment costing P40,000 was sold for P13,000. At the date of sale, the equipment had anaccumulated depreciation of P24,000. The cash received was recorded as income in 2022. In addition, depreciation wasrecorded for this equipment in both 2022 and 2023 at the rate of 10% of cost.9.The adjusted net income in 2021 isa.P132,000b.P130,000c.P128,000d.P118,00010. The adjusted net income in 2022 is:a.P188,000b.P186,000c.P182,000d.P178,00011.The adjusted net income in 2023 is:a.P153,000b.P151,000c.P149,000d.P145,000
12. ABC Company’s statement for 2021 and 2022 included errors as follows:YearEnding InventoryDepreciation2021P200,000 understatedP50,000 understated2022P300,000 overstatedP100,000 overstatedFor how much should retained earnings be retrospectively adjusted by January 1,2023?a.P250,000 increaseb.P250,000 decreasec.P200,000 decreased.P200,000 increase13. Biden Corp. reports on a calendar-year basis. Its 2022 and 2023 financial statements contained the following errors:20222023Over(under)statement of ending inventory....P(10,000)P 4,000Depreciation understatement.................P4,000P6,000Failure to accrue salaries at year end......P8,000P12,000As a result of the above errors, 2023 income would beaoverstated by P4,000b.overstated by P24,000c.overstated by P22,000d.overstated by P16,000Use the following information for the next two (2) questions:Trisia Company purchased pressing machinery that cost P54,000 on January 4, 2021. The entire cost was recorded as an expense. Themachinery has a nine-year life and a P50,400 depreciable cost. The error was discovered on December 20, 2023.14. Ignoring income tax considerations, Trisia's statement of comprehensive income for the year ended December 31, 2023 should showdepreciation expense in the amount ofa.P48,400b.P32,700c.P16,800d.P5,60015. Before the correction was made, the January 1, 2023, retained earnings was understated bya.P54,000b.P48,400c.P42,800d.P37,200Use the following information for the next two (2) questions:Jerome Corporation reported profit for the years 2022 and 2023 at P550, 000 and P700.000, respectively. Your audit of the company’saccounts disclosed the need for adjustments as follows:20222023Overstatement of ending inventories due to error in pricingP29,000P33,000Omission of depreciation on newly-acquired equipment15,00015,000Understatement of commission receivable22,00018,000A purchase of merchandise was not recorded until thefollowing year, and also was not included in the endinginventory60,00016. The adjusted profit for 2023 wasa.P677,000b.P700,000c.P710,000d.P737,00017. What is the effect of the foregoing errors on retained earnings at December 31, 2022?a.P22,000 overstatedb.P38,000 understatedc.P67,000 overstatedd.P82,000 overstated18. MAC Company reported the following for the first quarter:
What amount of total expense shall be reported in the first quarter?a.P2,125,000b.P4,900,000c.P1,225,000d.Answer not given19. BELL Company reported P 950,000 net income for the quarter ended September 30, 2023 which included the following after-tax items:●A P600, 000 loss from expropriation incurred on April 30, 2023 was allocated equally to the second, third and fourth quarters of2023.●A P160, 000 gain resulting from reversal on inventory writedown was recognized on August 1, 2023.. BELL Company haspreviously recognized P100,000 loss on inventory writedown during the second quarter.●In addition, the entity paid P480,000 on February 1, 2023 for 2023 calendar-year property taxes. Of this amount, P120,000 wasallocated to the third quarter of 2023.For the quarter ended September 30 2023, what amount should be reported as net income?a.P1,090,000b.P950,000c.P1,150,000d.Answer not given20. In January 2023, ABC Co. paid property taxes on its factory building for the calendar year 2023 in the amount of P240,000. In the firstweek of April 2023.ABC made unanticipated major repairs to the plant equipment at a cost of P600,000. These repairs will benefitoperations for the remainder of the calendar year. How should these expenses be reflected in ABCs quarterly financial reports?a.1st quarter - 60,000; 2nd quarter - 260,000; 3rd quarter - 260,000; 4th quarter - 260,000b.1st quarter - 210,000; 2nd quarter - 210,000; 3rd quarter - 210,000; 4th quarter- 210.000c.1st quarter - 60,000; 2nd quarter - 660,000; 3rd quarter - 60,000; 4th quarter - 60,000d.1st quarter - 240,000; 2nd quarter- 600,000; 3rd quarter- 0; 4th quarter- 0