Reference no: EM132940580

Your audit of Steph Corp. revealed that your client kept very limited records. All of the company's disbursements were made out of cash collections (coins and bills), but all purchases of merchandise and acquisitions of equipment were paid through issuances of checks. No record was kept for the cash in bank account, nor was a record kept for sales made. Accounts receivable were recorded only by keeping copies of tickets. Copies of these tickets were released to the customers upon collection of their accounts.

The following information were obtained:

1. The company started its operations on January 2, 2019, on which date 216,000 ordinary shares with a par value of P100 were issued in exchange for the following:

Cash P1,800,000

Building, useful life of 15 years 16,200,000

Land 5,400,000

2. An analysis of the bank statements showed total deposits of P12,600,000. Included in the total deposits were cash proceeds from the sale of the share capital made on January 2, 2019 for P1,800,000. The bank statement balance on December 31, 2019 was P900,000.

3. There were company's checks amounting to P180,000, which were dated and issued in December 2019, but paid by the bank in January 2020. Cash on hand on December 31, 2019 amounted to P450,000, which is inclusive of advances from a customer in the amount of P135,000.

4. During the year, the company borrowed P1,600,000 from the bank and repaid P400,000 in principal and P80,000 in interest.

5. Disbursements made during the year, not through check issuances, but from cash receipts, were as follows: Utilities of P360,000; Salaries of P360,000; Supplies of P720,000 and Dividends of P540,000. There were neither accruals nor deferrals of expenses at the end of the year.

6. An inventory of merchandise taken on December 31, 2019 showed P2,718,000 of merchandise.

7. Accounts receivable at the end of the year totaled P3,240,000. Of this amount, P180,000 may prove uncollectible.

8. Unpaid supplier invoices for merchandise purchased amounted to P1,260,000 at the end of the year.

9. Equipment with a cash purchase price of P1,440,000 was purchased on January 2, 2019, on an installment basis. During the year, the total checks issued for the total installment price of the equipment totaled P1,602,000, which all cleared the bank during the year. The equipment has a useful life of 10 years and is being depreciated under the straight-line method.

Problem 1: Compute for the profit under the accrual basis for the year ended December 31, 2019.