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Audit Assignment: Counterbalancing Errors

The document describes errors discovered in Girlie Corporation's financial statements for 2020. It includes: 1) A $50,000 purchase made in 2020 but recorded in 2021. Inventory was properly included in 2020. 2) A $70,000 sale made in 2020 but recorded in 2021. Inventory was properly excluded in 2020. 3) The 2020 ending inventory was understated by $20,000. The document asks the reader to determine the correct net income, working capital, and retained earnings amounts for 2020 and 2021 based on this information. It also asks the reader to prepare adjusting entries for the errors.

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161 views3 pages

Audit Assignment: Counterbalancing Errors

The document describes errors discovered in Girlie Corporation's financial statements for 2020. It includes: 1) A $50,000 purchase made in 2020 but recorded in 2021. Inventory was properly included in 2020. 2) A $70,000 sale made in 2020 but recorded in 2021. Inventory was properly excluded in 2020. 3) The 2020 ending inventory was understated by $20,000. The document asks the reader to determine the correct net income, working capital, and retained earnings amounts for 2020 and 2021 based on this information. It also asks the reader to prepare adjusting entries for the errors.

Uploaded by

Feelingerang MAYora
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

ASSIGNMENT ON AUDITNG AND ASSURANCE 1

Module 3 Topic 3

PROBLEM SOLVING (please attached your solutions) 40


points COUNTERBALANCING ERRORS
You discovered the following errors in connection with your
examination of the financial statements of Girlie
Corporation.

1) Purchase of merchandise on account on December 27,2020 amounting


to P 50,000.00 was not recorded until it was paid in January 2021. The
merchandise was properly included in the ending inventory in 2020.
2) Sale of merchandise on account on December 29,2020 amounting to
P 70,000.00 was not recorded until it was collected in January, 2021. The
merchandise was properly excluded in the ending inventory in 2020.
3) On December 31, 2020, the ending inventory was understated by
P 20,000.00.
The following data were extracted from the financial statements of Girlie
Corporation.

CY 2020 CY 2021 Net Income 100,000.00 150,000.00


Working Capital 300,000.00 400,000.00 RE, end of the year
100,000.00 250,000.00
Questions:
Based on the above data, determine the following:
1. Net Income in 2020
a. P 140,000 c. P 50,000
b. P 70,000 d. P 120,000
2. Working Capital, end of 2020
a. P 340,000 c. P390,000
b. P 320,000 d. P 250,000
3. Retained earnings, end of 2020
a. P 140,000 c. P 50,000
b. P 70,000 d. P 120,000
4. Net Income in 2021
a. P 110,000 c. P 130,000
b. P 120,000 d. P140,000
5. Working Capital, end of 2021
a. P 420,000 c. P 450,000
b. P 400,000 d. P 330,000
6. Retained earnings, end of 2021
a. P 250,000 c. P 230,000
b. P 300,000 d. P180,000
7. Prepare adjusting entries assuming errors were discovered in (a) 2020,
(b) 2021, and (c) 2022.

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