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[Mollynana]

PROBLEM 12-43
The Charmaine Company has adjusted and closed its books at the end of 2021. The company arrives at its
ending inventory position of P500,000 by a physical count taken on December 31 of each year. The following
are other data as of December 31.2021:
Net sales P 1,000,000
Cost of sales 550,000
Net income 200,000
Retained earnings after closing net income of P200,000 1,500,000
In March of 2022, the following errors were discovered.
a. Merchandise which cost P50,000 was sold for P64,000 on December 2021. The order was shipped on
December 31, 2021 with terms of FOB shipping point. The merchandise was not included in the ending
inventory. The sale was recorded on January 10, 2022 when the customer made payment on the sale.
b. Merchandise costing P19,000, located in a separate warehouse, overlooked and excluded from the 2021
inventory count.
c. On December 27, 2021, Charmaine purchased merchandise from a supplier costing P23,500. The order was
shipped December 29 (terms FOB destination) and was still "in-transit" on December 31. Since the invoice
was received on December 31, the purchase was recorded in 2021. The merchandise was not included in the
inventory count.
d. The client included in its 2021 ending Inventory a merchandise costing P25,800. This merchandise had been
custom-built and was being held until the customer could come and pick up the merchandise. The sale for
P28,500 was recorded in 2022.
Questions:
Based on the above data, answer the following:
1. Compute for the adjusted balance of ending inventory as of December 31, 2021.
a. P519,000
b. P544,800
c. P493,200
d. P474,200
2. Compute for the adjusted balance of Net Sales, 12/31/12.
a. P1,064,000
b. P1,035,500
c. P964,500
d. P1,092,500
3. Compute for the adjusted balance of cost of sales, 12/31/2021.
a. P566,700
b. P507,500
c. P592,500
d. P533,300
4. Compute for the adjusted balance of Net Income, 12/31/2021.
a. P285,000
b. P335,000
c. P262,200
d. P309,200
5. Compute for the adjusted balance of the retained earnings, 12/31/2021.
a. P1,585,000
b. P1,609,200
c. P1,562,200
d. P1,409,200

 

[🤖]

To compute the adjusted balances, let's go through each error and its impact on the financial statements.

a. Merchandise sold for P64,000 but not included in the ending inventory:
This error affects both the cost of sales and the ending inventory. The cost of the merchandise sold should be added to the cost of sales, and the cost of the merchandise should be deducted from the ending inventory.
Cost of Sales: P550,000 + P50,000 = P600,000
Ending Inventory: P500,000 - P50,000 = P450,000

b. Merchandise costing P19,000 overlooked and excluded from the 2021 inventory count:
This error affects only the ending inventory. The cost of the overlooked merchandise should be added to the ending inventory.
Ending Inventory: P450,000 + P19,000 = P469,000

c. Merchandise still "in-transit" on December 31, 2021, not included in the inventory count:
This error affects only the ending inventory. The cost of the merchandise in transit should be added to the ending inventory.
Ending Inventory: P469,000 + P23,500 = P492,500

d. Merchandise costing P25,800 included in 2021 ending inventory, but the sale recorded in 2022:
This error affects both the ending inventory and net income. The cost of the merchandise should be deducted from the ending inventory, and the sale should be deducted from net income.
Ending Inventory: P492,500 - P25,800 = P466,700
Net Income: P200,000 - P28,500 = P171,500

Now, let's answer the questions:

1. Compute for the adjusted balance of ending inventory as of December 31, 2021.
The adjusted balance of ending inventory is P466,700. (Option d)

2. Compute for the adjusted balance of Net Sales, 12/31/2021.
The adjusted balance of Net Sales is P1,035,500. (Option b)

3. Compute for the adjusted balance of cost of sales, 12/31/2021.
The adjusted balance of cost of sales is P600,000. (Option a)

4. Compute for the adjusted balance of Net Income, 12/31/2021.
The adjusted balance of Net Income is P171,500. (Option c)

5. Compute for the adjusted balance of the retained earnings, 12/31/2021.
The adjusted balance of retained earnings is P1,562,200. (Option c)