Select the best answer and provide a solution.

1. Cebu Company reported a retained earnings balance of P5,000,000 at January 1, 2021. In August 2021, Cebu determined that insurance premiums of P600,000 for the three-year period beginning January 1, 2020, had been paid and fully expensed in 2020. Cebu has a 35% income tax rate. What amount should Cebu report as adjusted beginning retained earnings in 2021?

a. P5,260,000

b. P5,390,000

c. P4,740,000

d. P5,130,000

2. After the issuance of its 2019 financial statements, Terry, Inc. discovered a computational error of P150,000 in the calculation of its December 31, 2020 inventory. The error resulted in a P150,000 overstatement in the cost of goods sold for the year ended December 31, 2020. In October 2021, Terry paid the amount of P500,000 in settlement of litigation instituted against it during 2020. Ignore income taxes. In the 2021 financial statements, the December 31, 2020 retained earnings balance, as previously reported, should be adjusted by a

a. P150,000 credit

b. P350,000 debit

c. P500,000 debit

d. P650,000 credit

3. Mactan Company's statements for 2019 and 2020 included the following errors:

December 31, 2019 inventory understated P2,000,000 December 31, 2020 inventory overstated 1,000,000

Depreciation for 2019 understated 400,000

Depreciation for 2020 overstated 800,000

How much should retained earnings be retroactively adjusted on January 1, 2021?

a. P600,000 increase

b. P600,000 decrease

c. P1,400,000 decrease

d. P1,400,000 increase

4. Allspark showed income before income taxes of P250,000 on December 31, 2020. On your year-end verification of the transactions of the company, you discovered the following errors:

P100,000 worth of merchandise was purchased in 2020 and included in the ending inventory. However, the purchase was recorded only in 2021.

A merchandise shipment valued at P150,000 was properly recorded as purchases at year-end. Since the merchandise were still at the port area, they were inadvertently omitted from the inventory balance at December 31, 2020.

Business taxes for the 4th quarter of 2020, amounting to P50,000, was recorded when payment was made by the firm in January, 2021.

Rental of P30,000 on an equipment , applicable for six months, was received on November 1, 2020. The entire amount was reported as income upon receipt.

Insurance premium covering the period from July 1, 2020 to July 1, 2021, amounting to P120,000, was paid and recorded as expense on July 31, 2020. The company did not make any adjustment at the end of the year.

The corrected income before income taxes for 2020 should be

a. P240,000

b. P290,000

c. P280,000

d. P340,000

5. Griggs Company bought 30% of Jackson Corporation in 2020. During 2020, Jackson reported net income in the amount of P400,000 and declared and paid dividends in the amount of P50,000. Griggs mistakenly accounted for the investment using the cost method instead of the equity method. What effect would this error have on the investment account and net income, respectively, for 2020?

a. Understated by P120,000; overstated by P105,000.

b. Overstated by P105,000; understated by P105,000.

c. Understated by P105,000; understated by P105,000.

d. Overstated by P120,000; overstated by P120,000