Intermediate accounting by robles empleo ch 8 answers 2008

Effect on 01/01/08Retained Earnings Understated Overstated Overstated 2005 depreciation expense 12,500 Understated 2006 depreciation expense 4,000 Net understatement in retained earning

PROBLEMS 8-1

8.2 Jay Company

Understatement (overstatement)

2007 Net incom

e

12/31/07 Worki ng Capita

l

12/31/07 Reta ined Earn ings Understatement of 12/31/05 inventory (48,000) Overstatement of 12/31/06 inventory (40,500) (40,500) (40,500) Understatement of 2005 depreciation expense (11,500)

3 year insurance premium charged to expense in

Unrecorded sale of fully depreciated machine in

Net understatement (overstatement) P(123,500) P144,500 P133,000

8-3 Mark Company

Overstatement of 2006 ending inventory ( 36,000) 36,000 Understated 2006 accrued expenses ( 40,000) 40,000 Unrecognized supplies inventory _ - 15,000

8-4 Jing, Inc.

Effect on 01/01/08Retained Earnings Understated (Overstated)

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)

b Retained Earnings 16,750

202,500 – 178,250 = 24,250

98,000 – 92,500 = 5,500

(b)

2006 2007

(49,500)

e 68,750 ( 6,250)

8.6 Spade Company

(a)Rent income of 2007 recorded in 2006 (6,500) 6,500 (b)Omission of unused supplies

(c) Omission of accrued salaries

8.7 Lily Corporation

Inventory Accounts Payable Net Sales Initial amounts P1,750,000 P1,200,000 P8,500,000

2 50,000 -

3 20,000 -

4 26,000 - (40,000)

5 25,000 -

6 30,000 -

7 - 60,000

8 2,000 4,000

-Adjusted amounts P1,903,000 P1,264,000 P8,425,000

MULTIPLE CHOICE

MC5 B 200,000/5 = 40,000

MC6 A 30,000 over + 27,000 over + 7,500 over – 48,000 under = 16,500 net

overstatement

MC7 A 27,000 over – 7,500 under – 48,000 under = 28,500 net understatement MC8 C 27,000 over + 6,000 over – 48,000 under – 7,500 under = 22,500 net

understatement

MC9 A 250,000 – 100,000 + 150,000 – 50,000 – (30,000 x 4/6) + (120,000 x 18/24 =

320,000 MC10 A 1,550,000 + 10,000 – 80,000 + 120,000 – 55,000 – 100,000 = 1,445,000 MC11 D 312,500 + 25,000 - 4,000 – 50,000 – 18,000 – 30,000 = 235,500

MC12 A 10,000 – 8,000 = 2,000 net understated

MC13 D 10,000 + 25,000 – 8,000 = 27,000

MC14 C

MC15 C 2004 net income : 8,000 overstated – 2,000 understated ; 2005 net income

8,000 understated – 2,000 overstated

MC16 B 2,300,000 + 60,000 – 40,000 – 50,000 + 100,000 = 2,370,000

MC17 B 10,000 – 7,700

MC18 D 258,000 – 7,700

MC19 B 589,500 – 112,500 – 16,000

MC20 C

MC21 D 613,400 + 90,000 + 12,000 – 28,000

MC22 A 20,000 + 13,500 – 8,000

MC23 A The shares are treasury shares

MC24 A

MC25 D

MC26 D

MC27 A

MC28 A 300,00 – 80,000

MC29 A 60,000 – 4,000 – 12,000

MC30 C 434,900 + 12,000

MC31 D 60,000 + 15,000

MC32 C 1,500,000 X 12% x 3/12

MC33 C

MC34 D

MC35 D

MC36 D 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 MC37 D

MC38 D 2,500,000 – 112,500 – 50,000 – 80,000

MC39 B 1,300,000 – 90,000 – 36,000 + 28,000

MC40 C 500,000 + 7,700 + 30,000 + 18,000 + 8,000 – 4,000 – 16,000 + 15,000

MC41 A 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

MC42 B 30,000 – 4,000

MC42 A 20,000 + 31,500

MC43 D 75,000 + 16,000

MC44 B 430,000 – 36,000 + 31,500 – 16,000

MC45 A 950,000 + 36,000

MC46 C 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)

Accounts receivable 112,500

Allowance for Bad Debts 30,000

Accounts Payable 12,000

Investments in Stock 260,000

Retained Earnings 31,500

Prepaid Expenses 8,000

Accumulated Depreciation – Equipment 4,000

Accumulated Depreciation – Equipment 12,000

Interest Expense (Other Losses and Expenses) 150,000

150,000

Current Portion of Mortgage Payable 500,000

Retained Earnings 16,000

Accrued Expenses 15,000

Advances from Customers 80,000

Working Paper adjustments to restate 2006 financial statements

Accrued Expenses 16,000

Current Portion of Mortgage Payable 500,000