COLEGIO DE SEBASTIAN

SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

MISSTATEMENTS IN THE FINANCIAL STATEMENTS (ASSIGNMENT)

COMPREHENSIVE PROBLEM

Tahoma Company began operations on January 1, 2017. The accounting records have been
maintained on a double-entry basis, but the auditor noted that the cash basis of accounting has
been used by the Company. The trial balance prepared from those records on December 31, 2018
is as follows:

Accounts Dr. Cr.

Cash 750,000
Sales 2,000,000
Purchases 1,000,000
Operating expenses 750,000
Printing equipment 100,000
Ordinary shares 1,000,000
Land 400,000
Building 750,000
Mortgage payable 450,000
Retained earnings 300,000

During the course of the audit, the following data were gathered:

 Accounts receivable at December 31, 2017 and December 31, 2018 were P100,000 and
P250,000, respectively. Accounts payable at December 31, 2017 and December 31, 2018
were P175,000 and P140,000, respectively;

 Included in sales of 2018 was P20,000 paid in advance by a customer for goods to be delivered
in 2019;

 Accrued expenses total P35,000 at year-end 2017 and P50,000 at year-end 2018;

 Merchandise inventory amounted to P65,000 at December 31, 2017 and P110,000 at

December 31, 2018. The purchases include P50,000 cash advances to a supplier for
merchandise to be delivered in 2019;

 The printing equipment was acquired on September 1, 2017. The estimated life is 10 years
with no residual value. Land and building were acquired on September 1, 2017, and the
building has an estimated useful life of 20 years (use straight-line method of depreciation);

 An analysis of the company’s receivables indicates that at December 31, 2018, 10% of
outstanding accounts may prove uncollectible;
 The mortgage payable was related to the land and the building acquired on September 1,
2017. Interest is at 12% per annum, payable semi-annually on September 1 and March 1. The
mortgage is payable in annual installments of P50,000 every August 31. The first installment
was paid on August 31, 2018. The interest paid was charged to operating expenses.

REQUIREMENT:

Prepare the following as of and for the financial year ended December 31, 2018:

 Audit adjusting entries;

 Statement of Comprehensive Income; and
 Statement of Financial Position.