You were engaged to perform an audit of the accounts of the Honesty Corporation for the year ended December 31, 2020, and you observed the taking of the physical inventory of the company on December 30, 2020. Only merchandise shipped by the company to customers up to and including December 30, 2020 have been eliminated from inventory. The inventory as determined by physical inventory count has been recorded on the books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an FOB shipping point basis. You are to assume that all purchase invoices have been correctly recorded. The inventory was recorded through the cost of sales method.

The following lists of sales invoices are entered in the sales books for the month of December 2020 and January 2021, respectively.

DECEMBER 2020

Sales invoice amount Sales invoice date Cost Date shipped

a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
e) 500,000 Dec. 30 280,000 Dec. 29, 2020 (shipped to consignee)

JANUARY 2021

f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020

1. Sales for the year ended December 31, 2020 is misstated by?

2. Profit for the year ended December 31, 2020 is misstated by?

3. Inventory as of December 31, 2020 is misstated by?

4. Working capital as of December 31, 2020 is misstated by?

Answer rating: 100% (QA)

Impact calculation for each transaction a As sales invoice recorded on 21st Dec and goods shipped on ... View the full answer