The condensed income statement of Elaine Company for the year ended December 31, 20x4, is presented below:

Sales P2,000,000

Cost of goods sold 1,200,000

Gross profit 800,000

Operating expenses 300,000

Net income P500,000

The December 31, 20x4 audit of the company’s financial statements disclosed the following errors:

1) The December 31, 20x4 inventory was understated by P62,000.

2) Accrued expenses of P8,000 and prepaid expenses of P12,000 were not recognized in the company’s books.

3) Sales of P10,000 were not recorded until January 20x5, although the goods were shipped in December 20x4, and were excluded from the December 31 physical inventory.

4) Purchases of P60,000 made in December 20x4 were not recorded, although the goods were received and properly included in the December 31 physical inventory.

5) A machine was sold for P20,000 on July 1, 20x4, and the proceeds were credited to the Sales account. the machine was acquired on January 1, 20x1, for P120,000. At that time, it had an estimated life of six (6) years with no residual value. No depreciation was recorded on this machine in 20x4.

REQUIRED:

3. Prepare the necessary adjusting entries on December 31, 20x4.

Answer rating: 100% (QA)

Adjustment entries Account Titles and Explanation Debit Credit 1 Inventory 62000 Cost o... View the full answer