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What is the correct net income for the year

    Assignment Instructions

    Assignment ID: FG133135544

    Question 1 – During your examination of the accounting books of South Sky Company for the year ended December 31, 2022 revealed the following errors:

    1. Unrecorded unpaid salaries at the end of 2021 and 2022 were P 100,000 and P 140,000, respectively.

    2. The following errors were discovered in the audit of inventory at December 31, 2021: (a) over footing, P 220,000; (b) Under extension, P 30,000.

    3. Unexpired insurance of P 120,000 for the year 2023 was expensed in 2022.

    4. Unrecorded interest receivable at the end of 2023, P 20,000.

    5. The proceeds of P 220,000 from sale of a machinery with a cost of P 400,000 was credited to Miscellaneous Income on January 1, 2022. The machinery was 60% depreciated on the date of sale. Depreciation for 2022 was recorded at the rate of 10%.

    The reported net income at the end of 2021 and 2022 were P 1,750,000 and P 2,000,000, respectively.

    Required –

    1. What is the correct net income for the year 2021?

    2. What is the correct net income for the year 2022?

    Question 2 – Net income for Victory Company for the years 2021 and 2022 is shown below. An audit of the accounts, however, disclosed the following errors:

    2021

    2022

    Net income after income tax

    246,500

    312,500

    Understatement of year-end inventory

    25,000

    Purchase of computer at year end charged to expense. The estimated useful life is 10 years.

    40,000

    Credit purchases of merchandise not recorded but included in the physical count at year end

    50,000

    Rent received in advance and credited to income

    18,000

    Unrecorded unpaid taxes at year-end

    20,000

    Required –

    1. What is the correct net income for the year 2021?

    2. What is the correct net income for the year 2022?

    Question 3 – While examining the December 31, 2022 financial statements of Bukidnon Company, a new client, you discover the following:

    1. Inventory at January 1, 2022, had been overstated by P 30,000.

    2. Inventory at December 31, 2022 was understated by P 50,000.

    3. A three year insurance policy had been purchased on January 2, 2021, for P 15,000. The entire amount was charged as an expense in 2021.

    4. During 2022, Bukidnon received a P 10,000 cash advance from a customer for merchandise to be manufactured and shipped during 2023. The 10,000 was credited to Sales Revenue. Bukidnon’s gross profit on sales is 50%.

    5. Net income reported on the 2022 income statement (before reflecting any adjustments for the above items) is P 215,000.

    Required – What is the proper net income for 2022?

    Question 4 – Pamana Company’s bookkeeper is not familiar with accrual accounting concepts. He determined net income for 2022 to be P 79,800. In your audit of the company you determine the following:

    1. Accrued, but unpaid, wages at the end of 2022 amounted to P 45,750 and have not been recorded.

    2. Insurance premiums paid in 2022 totaled P 180,000, only 1/3 of which relate to coverage for 2022. The other 2/3 of which relate to coverage in future years. (The total amount was expensed when paid.)

    3. Accounts receivable of P 500,000, which have been properly recorded, are expected to result in losses from uncollectibility of P 30,000. (No specific accounts have been written off as of the end of the year.)

    4. Cash of P 115,000, received in late 2022, was recorded as revenue, although the work to be performed under the related contract will take place in 2023.

    Required – What is the revised net income figure for 2022?

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