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Midterm Exam - Part 1

The document is about Urdaneta City University which is owned and operated by the City Government of Urdaneta. It provides an intermediate accounting exam with 3 problems requiring students to calculate the net effects of accounting errors on company profit and loss statements for 2020 and 2021. It also includes sample solutions and was prepared by an assistant professor of accounting.

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Andres, Rebecca Paula
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268 views4 pages

Midterm Exam - Part 1

The document is about Urdaneta City University which is owned and operated by the City Government of Urdaneta. It provides an intermediate accounting exam with 3 problems requiring students to calculate the net effects of accounting errors on company profit and loss statements for 2020 and 2021. It also includes sample solutions and was prepared by an assistant professor of accounting.

Uploaded by

Andres, Rebecca Paula
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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URDANETA CITY

UNIVERSITY
Owned and operated by the City Government of Urdaneta

Intermediate Accounting 3
Midterm Exam Part 1

Answer the following problems in a coupon bond. Follow the format


given. Write legibly.

Problem 1
Nartates Corporation reports on calendar-year basis. Its 2020 and
2021 financial statements contained the following errors:

2020 2021
Under (Over) statement of ending inventory 10,000 (4,000)
Depreciation understatement 4,000 6,000
Failure to accrue salaries at year-end 8,000 12,000

Required:

What are the net effects of the errors on Nartates 2020 and 2021
profit or loss, respectively? (10 pts.)

Solution:
2020 2021
Under (Over) statement of ending inventory
- 2020
Under (Over) statement of ending inventory
- 2021
Depreciation understatement - 2020
Depreciation understatement - 2021
Failure to accrue salaries at year-end - 2020
Failure to accrue salaries at year-end - 2021
Net Effect on Profit or Loss - (Over) Under
Statement

(075) 600 - 1507


San Vicente West, Urdaneta City, Pangasinan
Bright future starts here 1 ucu.edu.ph | [email protected]
URDANETA CITY
UNIVERSITY
Owned and operated by the City Government of Urdaneta

Problem 2
Nastor Company s December 31 year-end financial statements
contained the following errors:

2020 2021
Ending inventory 4,000 understated 3,600 overstated
Depreciation expense 800 understated -----

An insurance premium of P3,600 was prepaid in 2020 covering the


years 2020, 2021, 2022. The entire amount was charged to expense
in 2020. In addition, on December 31, 2021, fully depreciated
machinery was sold for P6,400 cash, but the sale was not recorded
until 2022. There were no other errors during 2020 or 2021, and no
corrections have been made for any of the errors. Ignore income tax
considerations.

Required:

What are the net effects of the errors on Nastor s 2020 and 2021
profit or loss, respectively? (10 pts.)

Solution:
2020 2021
Ending inventory - 2020
Ending inventory - 2021
Depreciation
Insurance expense - 2020
Insurance expense - 2021
Gain on sale
Net Effect on Profit or Loss - (Over) Under
Statement

(075) 600 - 1507


San Vicente West, Urdaneta City, Pangasinan
Bright future starts here 2 ucu.edu.ph | [email protected]
URDANETA CITY
UNIVERSITY
Owned and operated by the City Government of Urdaneta

Problem 3
In reviewing the books of Pula Inc., the auditor discovered certain
errors that had occurred during 2020 and 2021. No errors were
corrected during 2020. The errors are summarized below:

a. Beginning merchandise inventory (January 1, 2020) was


understated by P8,640.

b. Merchandise costing P2,400 was sold for P4,000 to Ej Saure Jr. on


December 29, 2019, but the sale was recorded in 2021. The
merchandise was shipped FOB shipping point and was not included
in the inventory. Pula uses a periodic inventory system.

c. A two-year fire insurance policy was purchased on May 1, 2020, for


P5,760. The entire amount was debited to Prepaid Insurance. No
adjusting entry was made in 2020 or 2021.

d. A one-year note receivable of P9,600 was held by Pula beginning


October 1, 2020. Payment of the 10 percent note and accrued
interest was received upon maturity. No adjusting entry was made
on December 31, 2020.

e. Equipment with a ten-year life was purchased on January 1, 2020,


for P39,200. No depreciation expense was recorded during 2020 or
2021. Assume that the equipment has no residual value and that
Pula uses the straight-line method of recording depreciation.

Required:

Prepare journal entries on December 31, 2021 to correct each of


these independent situations. Assume that the nominal accounts
for 2021 have not yet been closed into the income summary
account. (15 pts.)

(075) 600 - 1507


San Vicente West, Urdaneta City, Pangasinan
Bright future starts here 3 ucu.edu.ph | [email protected]
URDANETA CITY
UNIVERSITY
Owned and operated by the City Government of Urdaneta

Debit Credit

Prepared by:

REMEDIOS A. PALAGANAS, CPA, MBA


Assistant Professor IV

Noted:

PELILIA C. VELOSO, CPA, LLB, DBA


Dean College of Business Management and Accountancy

(075) 600 - 1507


San Vicente West, Urdaneta City, Pangasinan
Bright future starts here 4 ucu.edu.ph | [email protected]

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