You are engaged to audit the financial statements of Sailor Co. The balance sheet below is provided to you: Sailor Co. Balance Sheet December 31, 2021 ASSETS LIABILITIES AND CAPITAL Cash 290,000.00 Accounts payable 190,000.00  Accounts receivable 139,000.00 Notes payable 83,500.00  Notes receivable 200,000.00 Ordinary share capital 300,000.00  Inventory 357,000.00 Retained earnings 412,500.00  Total 986,000.00 Total 986,000.00  The records of Sailor Co. were reviewed. The following errors were discovered. These errors were not  corrected until the current year under audit. a. On July 1, 2019, Sailor paid P150,000 for a 5-year insurance policy. The amount was debited to  Insurance Expense when paid. b. Sailor Co. failed to record unearned rent revenue of P16,000 and P9,000 in 2018 and 2020,  respectively. c. Sailor Co. also failed to recognize accrued expenses of P23,000, P18,000 and P7,000 for 2018, 2019  and 2020, respectively. d. On December 31, 2019, Sailor Co. bought equipment worth P150,000 and furniture worth P85,000. The  accountant thought that to make things simple in record keeping these should be expensed outright as  it would be all expensed after 5 years anyway. The amount was debited to Miscellaneous Expense. e. Supplies on hand at the end of 2019, 2020 and 2021 of P5,000, P6,500 and P4,000, respectively, was  not recorded.  Additional information: a. Inquiry with the client reveals that the policy of the company is to depreciate fixed assets using straight  line method. b. There are no dividends declared since the beginning of operations on January 1, 2018. c. The company’s accountant doesn’t know accrual basis of accounting so they have been using cash  basis of accounting. d. Notes payable is due on December 31, 2023. e. Notes receivable is due on June 30, 2022. f. The net income reported for the years 2018-2021 were: 2018 87,500.00  2019 12,500.00  2020 137,000.00  2021 175,500.00   TRUE OR FALSE Statement 1: The proposed adjusting journal entries to correct the balance sheet includes a credit to Office Supplies Expense of P4,000. Statement 2: The adjusted total current assets for the year ended December 31, 2021 is P1,065,000. Statement 3: The adjusted retained earnings beginning for 2021 is P520,500.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question

You are engaged to audit the financial statements of Sailor Co. The balance sheet below is provided to you:
Sailor Co.
Balance Sheet
December 31, 2021
ASSETS LIABILITIES AND CAPITAL
Cash 290,000.00 Accounts payable 190,000.00 
Accounts receivable 139,000.00 Notes payable 83,500.00 
Notes receivable 200,000.00 Ordinary share capital 300,000.00 
Inventory 357,000.00 Retained earnings 412,500.00 
Total 986,000.00 Total 986,000.00 
The records of Sailor Co. were reviewed. The following errors were discovered. These errors were not 
corrected until the current year under audit.
a. On July 1, 2019, Sailor paid P150,000 for a 5-year insurance policy. The amount was debited to 
Insurance Expense when paid.
b. Sailor Co. failed to record unearned rent revenue of P16,000 and P9,000 in 2018 and 2020, 
respectively.
c. Sailor Co. also failed to recognize accrued expenses of P23,000, P18,000 and P7,000 for 2018, 2019 
and 2020, respectively.
d. On December 31, 2019, Sailor Co. bought equipment worth P150,000 and furniture worth P85,000. The 
accountant thought that to make things simple in record keeping these should be expensed outright as 
it would be all expensed after 5 years anyway. The amount was debited to Miscellaneous Expense.
e. Supplies on hand at the end of 2019, 2020 and 2021 of P5,000, P6,500 and P4,000, respectively, was 
not recorded. 
Additional information:
a. Inquiry with the client reveals that the policy of the company is to depreciate fixed assets using straight 
line method
.
b. There are no dividends declared since the beginning of operations on January 1, 2018.
c. The company’s accountant doesn’t know accrual basis of accounting so they have been using cash 
basis of accounting.
d. Notes payable is due on December 31, 2023.
e. Notes receivable is due on June 30, 2022.
f. The net income reported for the years 2018-2021 were:
2018 87,500.00 
2019 12,500.00 
2020 137,000.00 
2021 175,500.00

 

TRUE OR FALSE

Statement 1: The proposed adjusting journal entries to correct the balance sheet includes a credit to Office Supplies Expense of P4,000.
Statement 2: The adjusted total current assets for the year ended December 31, 2021 is P1,065,000.
Statement 3: The adjusted retained earnings beginning for 2021 is P520,500.

Expert Solution
steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Financial Statements
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education