Reference no: EM132793929

Question - Karen Company reported net income for a 2-year period as follows:

2017 - Php 6,000,000

2018 - Php 8,000,000

In an audit of its financial statement for the year 2017, the following errors were discovered:

Bad debt expense of Php 11,000 was not recorded in 2017.

Depreciation expense in 2018 was overstated by Php 14,000.

Depreciation expense in 2017 was understated by Php 12,000.

The company leased a portion of its building for Php 480,000. The term of the lease is for a 12 months period ending April 30, 2018. Collection of rent was credited to unearned rent revenue account. At the end of 2017, no entry was made to recognize the earned portion of the amount collected.

The company paid a 12-month insurance period of Php 240,000 effective April 1, 2017. The entire amount was recognize to an asset account and no adjustment was made at the end of 2017.

Required - Answer the following:

1. Compute the adjusted net income for 2017 and 2018 and the Retained Earnings as of December 31, 2017 and December 31, 2018.

2. Give the effect of the errors in the 2017 working capital

3. Prepare the adjusting entries assuming the errors were discovered in (a) 2017; (b) 2018 and (c) 2019?