SINGLE ENTRY AND ERROR CORRECTION

1. An entity provided the following increases in account balances that occurred during the current year:

Assets 9,000,000
Liabilities 3,000,000
Share capital 5,000,000
Share premium 500,000
Except for a P2,000,000 dividend payment, the year’s earnings and a P200,000 prior period error
from understatement of ending inventory, there were no other changes in retained earnings for the
year. What is the net income for the current year?

2. An entity reported shareholders’ equity of P8,000,000 on December 31, 2017. The entity revealed
the following transactions during the year:

 An adjustment of retained earnings for 2016 under depreciation 300,000

 Gain on sale of treasury shares 500,000
 Dividend declared, of which P500,000 was paid 1,500,000
 Net income for 2017 3,000,000
The share capital balance of P5,000,000 remained unchanged during the year. What is the balance of
retained earnings on January 1, 2017?

3. An entity revealed the following changes in the accounts for the current year:

Cash 1,000,000
Accounts receivable, net allowance 1,900,000
Inventory 2,200,000
Equipment (1,500,000)
Accounts payable 500,000
Bonds payable (2,000,000)
Loan payable 3,000,000
Accrued interest payable 100,000
During the current year, the entity issued 10,000 ordinary shares of P100 par value for P150 per
share. Dividend of P4,000,000 was paid in cash during the year. The entity borrowed P3,000,000
from the bank and made interest payment of P200,000. The bank loan is unpaid at year-end and the
interest payable at year-end was P100,000. There is no interest payable at the beginning of the year.
Equipment with fair value of P500,000 was donated by a shareholder during the year. What is the
net income for the current year?
4. An entity reported the following errors:
December 31, 2016 December 31, 2017
Ending inventory P950,000 overstated P800,000 understated
Depreciation P250,000 understated
An insurance premium of P600,000 was prepaid in 2016 covering the years 2016, 2017 and 2018. The
entire amount was charged to expense in 2016. No corrections have been made for any of the errors.
Ignore income tax. What is the total effect of the errors on retained earnings on December 31, 2017

5. An entity began operations on January 1, 2016. The financial statements contained the following
errors:
2016 2017
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2017, a fully depreciated equipment was sold for P100,000 cash but the
sale was not recorded until 2018. Before income tax, what is the total effect of the errors on
1. Net income for 2016?
2. Net income for 2017?
3. Working capital on December 31, 2017?
4. Retained earnings on December 31, 2017?