[ANSWER] - Correction of Errors - Josie Company

BA 123 Exercise

Correction of Errors

You have been engaged to audit the accounts of Josie Company for the first time in 2008. During the audit you found the following: Year ending December 31 2006 2007 2008 Omissions from the books: a. Accrued expenses, December 31 P150,000 P70,000 P220,000 b. Accrued income, December 31 80,000 90,000 50,000 c. Prepaid expenses, December 31 160,000 120,000 60,000 d. Unearned income, December 31 110,000 130,000 100,000 Instructions: (a) For each number, indicate the effect by writing O for overstated, or U for understated, or X for no effect; (b) Indicate the amount of over- or understatement. EFFECT

AMOUNT

U

150,000

1. On 2007 net income of the omission of accrued expenses at the end of 2006

U

70,000

2. On 2008 net income of the omission of accrued expenses at the end of 2007.

U O NET = O

70,000 220,000 150,000

3. On 2008 net income of the omission of accrued expenses at the end of 2006, 2007, and 2008, when considered together.

70,000

4. On retained earnings after closing at December 31, 2007 of the omission of accrued expenses at the end of 2006 and 2007, when considered together.

220,000

5. On retained earnings after closing at December 31, 2008 of the omission of accrued expenses at the end of 2006 and 2007, and 2008, when considered together.

O

220,000

6. On working capital at December 31, 2008 of the omission of accrued expenses at the end of 2006, 2007, and 2008, when considered together.

O U NET = O

90,000 50,000 40,000

7. On 2008 net income of the omission of accrued income at the end of 2006, 2007, and 2008, when considered together.

50,000

8. On working capital at December 31, 2008 of the omission of accrued income at the end of 2006, 2007, and 2008, when considered together.

0

9. On retained earnings after closing at December 31, 2007 of the omission of accrued income at the end of 2006.

O

O

U

X

EFFECT

AMOUNT

U

50,000

U O NET = U

160,000 120,000 40,000

10. On retained earnings after closing at December 31, 2008 of the omission of accrued income at the end of 2006, 2007, and 2008 when considered together. 11. On 2007 net income of the omission of prepaid expenses at the end of 2006 and 2007.

60,000

12. On working capital at December 31, 2008 of the omission of Prepaid expenses at the end of 2007 and 2008.

120,000

13. On retained earnings after closing at December 31, 2007 of the omission of prepaid expenses at the end of 2006 and 2007.

U

60,000

14. On retained earnings after closing at December 31, 2008 of the omission of prepaid expenses at the end of 2006, 2007, and 2008.

U

130,000

15. On 2008 net income of the omission of unearned income at the end of 2006 and 2007.

100,000

16. On retained earnings after closing at December 31, 2008 of the omission of unearned income at the end of 2006, 2007, and 2008.

100,000

17. On working capital at December 31, 2008 of the omission of unearned income at the end of 2006, 2007, and 2008.

120,000

18. On 2008 net income of the omission of both accrued expense and unearned income at the end of 2006, 2007, and 2008 when considered together.

30,000

19. On 2007 net income of the omission of both accrued income and prepaid expense at the end of 2006 and 2007.

320,000

20. On retained earnings after closing at December 31, 2008 of the omission of both accrued expenses and unearned income at the end of 2006, 2007, and 2008 when considered together.

30,000

21. On 2007 net income of the omission of accrued expenses, accrued income, prepaid expenses, and unearned income at the end of 2006 and 2007.

220,000

22. On 2008 net income of the omission of accrued expenses, accrued income, prepaid expenses, and unearned income at the end of 2006, 2007 and 2008 when considered together.

U

U

O

O

O

O

O

U

O

EFFECT U

O

O

AMOUNT 10,000

23. On retained earnings after closing at December 31, 2007 of the omission of accrued expenses, accrued income, prepaid expenses, and unearned income at the end of 2006 and 2007.

210,000

24. On retained earnings after closing at December 31, 2008 of the omission of accrued expenses, accrued income, prepaid expenses, and unearned income at the end of 2006, 2007 and 2008 when considered together.

210,000

25. On working capital at December 31, 2008 of the omission of accrued expenses, accrued income, prepaid expenses, and unearned income at the end of 2006, 2007 and 2008 when considered together.

NOTES: The effect on RE after closing and Working Capital is the same.