Please help! Accounting Changes and Errors

During your examination of the December 31, 2017 financial statements of KAKAYANIN Co., you discovered certain
errors that had occurred during 2016 and 2017. No errors were corrected during 2016. The errors are summarized

- Beginning merchandise inventory in 2016 was understated by ₱259,200.

- Merchandise costing ₱72,000 was sold for ₱120,000 to PAGSUBOK Corp. on December 28, 2016, but the sale was recorded in 2017. The merchandise was shipped FOB shipping point and was included in ending inventory.
KAKAYANIN uses the periodic inventory system.

- A two-year fire insurance policy was purchased on May 1, 2016 for ₱172,800. The whole amount was charged to Prepaid Insurance. No adjusting entry was prepared in 2016 and 2017.

- A one-year note receivable of ₱288,000 was held by KAKAYANIN Co., beginning October 1, 2016. Payment of the 10% note and accrued interest was received upon maturity. No adjusting entry was made on December 31, 2016.

- Equipment with a 10-year useful life was purchased on January 1, 2016 for ₱1,176,000. No depreciation expense
was recorded during 2016 or 2017. Assume that the equipment has no residual value and that KAKAYANIN Co.
uses the straight-line method for recording depreciation.

- The company reported a ₱1,500,000 net income in 2016 and ₱1,750,000 net income in 2017.

Based on the information above and on your examination for LABAN Co.;

1. What is the correct net income in 2016?

2. What is the adjusted balance of the net income in 2017?

3. By how much is the December 31, 2017 retained earnings be overstated/understated?

4. What is the net/total errors to the December 31, 2017 working capital?


  • MarieNoelle
    MarieNoelle Moderator, MAAT, AAT Licensed Accountant Posts: 1,369
    It would help other forum members if you can show that you have attempted the question and explain where you have a particular issue. Posting a whole question (as you have done here and on your other post) without being more specific is unlikely to solicit many responses. People on here are more willing to come and help if they know what you find difficult.
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