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    QUIZ1

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    Janysse Calderon
    The audit of Zeus Corporation for the years 2018-2020 revealed several errors: 1) rent for 2019-2021 was paid in advance and incorrectly expensed in 2019, 2) accrued salaries were omitted each year, 3) sales were incorrectly recorded upon collection instead of delivery, 4) advance payments to suppliers were incorrectly expensed upon payment instead of goods receipt, and 5) a truck overhaul cost was incorrectly expensed instead of capitalized. Adjusting entries are required for each year to correct the errors and determine the correct net income and retained earnings for each period.

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    QUIZ1

    Uploaded by

    Janysse Calderon
    40 views1 page
    The audit of Zeus Corporation for the years 2018-2020 revealed several errors: 1) rent for 2019-2021 was paid in advance and incorrectly expensed in 2019, 2) accrued salaries were omitted each year, 3) sales were incorrectly recorded upon collection instead of delivery, 4) advance payments to suppliers were incorrectly expensed upon payment instead of goods receipt, and 5) a truck overhaul cost was incorrectly expensed instead of capitalized. Adjusting entries are required for each year to correct the errors and determine the correct net income and retained earnings for each period.

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    The audit of Zeus Corporation for the years 2018-2020 revealed several errors: 1) rent for 2019-2021 was paid in advance and incorrectly expensed in 2019, 2) accrued salaries were omitted each year, 3) sales were incorrectly recorded upon collection instead of delivery, 4) advance payments to suppliers were incorrectly expensed upon payment instead of goods receipt, and 5) a truck overhaul cost was incorrectly expensed instead of capitalized. Adjusting entries are required for each year to correct the errors and determine the correct net income and retained earnings for each period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    40 views1 page

    QUIZ1

    Uploaded by

    Janysse Calderon
    The audit of Zeus Corporation for the years 2018-2020 revealed several errors: 1) rent for 2019-2021 was paid in advance and incorrectly expensed in 2019, 2) accrued salaries were omitted each year, 3) sales were incorrectly recorded upon collection instead of delivery, 4) advance payments to suppliers were incorrectly expensed upon payment instead of goods receipt, and 5) a truck overhaul cost was incorrectly expensed instead of capitalized. Adjusting entries are required for each year to correct the errors and determine the correct net income and retained earnings for each period.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    APPLIED AUDITING

    QUIZ No. 1
    CORRECTION OF ERRORS

    You were engaged to audit of the financial statements of Zeus Corporation for the period ended
    December 31, 2020. The company which is into the distribution of construction material and
    supplies in various location in Sentinel has started its operations in 2018. The company reported
    net income for 2018, 2019, and 2020 at P1,020,000; P1,450,000; and P1,805,000, respectively.

    Your investigations and inquiries revealed the following information:

    a. A three-year covering the period 2019 to 2021, amounting to P180,000 for a warehouse in
    Sentinel was paid in advance at the beginning of 2019. The entire amount was charged to
    rent expense upon expense upon payment;
    b. Accrued salaries expenses at the end of the following years were consistently omitted:
    2018-P86,000; 2019-P55,000; 2020-P75,000
    c. The following are the invoice prices of construction materials and supplies delivered to
    customers by the end of each year under FOB shipping point term. While the goods were
    appropriately excluded from the year-end inventory count, the related invoices were
    recorded in the sales journal only upon collection the following year. Gross profit margin is
    at 40% based on sales
    2018-P135,000; 2020-P122,000;
    d. The following advance payments to suppliers at the end of the end year were recorded in
    the purchases journal upon payment. Goods for the said advances however were only
    received the following year.
    2019-P105,000; 2020-P122,000
    e. A major overhaul was done on one of the company’s delivery trucks at the beginning of
    2019. The overhaul did not extend the truck’s remaining life which was 5 years but it
    improved the truck’s operating efficiency and safety. The overhaul cost P250,000 and was
    charged by the company to repairs and maintenance expense upon incurrence.

    REQUIRED:
    1. Prepare adjusting entries for the years 2018, 2019 and 2020.
    2. What is the correct 2018 net income?
    3. What is the correct 2019 net income?
    4. What is the correct 2020 net income?
    5. What is the retrospective adjustment to retained earnings as a result of your audit in 2020? Indicate
    whether debit or credit to retained earnings.
    6. What is the effect of adjustments to retained earnings in 2019? Indicate whether debit or credit to
    retained earnings?
    7. The effect of the errors on 2020 working capital is? Indicate whether understatement or
    overstatement of working capital.

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