Reference no: EM133110625

Question - The extract of the general ledger balance of Britney Corporation's Retained Earnings account is presented below:

RETAINED EARNINGS
Date	Description	Debit	Credit	Balance
01/01/2019	Balance forwarded			6,336,540
05/21/2019	Appropriation for capital expenditures	5,000,000		1,336,540
10/09/2019	Cash dividends	690,000		646,540
12/31/2019	Net income		1,201,560	2,848,100
09/16/2020	Cash dividends	828,000		2,020,100
12/31/2020	Reversal of appropriation		3,500,000	5,520,100
12/31/2020	Net income		1,513,730	7,033,830
05/18/2021	Appropriation for capital expenditures	7,000,000		33,830
12/31/2021	Reversal of appropriation		1,500,000	1,533,830

Prior to closing the nominal accounts as of December 31, 2021 and the net income of 2021 of P1,824,560, the following items were discovered:

1. Rearrangement costs for the executive offices on May 1, 2019 amounted to P330,000 was charged to repairs and maintenance. Included in the amount were cost of office furniture and fixtures of P246,000, which is estimated to have an estimated useful life of five years.

2. On September 1, 2019, the company entered an advertising contract with Spears & Co. for P150,000 with a three-year coverage, which was paid and charged to expense on the same date.

3. Purchases of merchandise in 2019 of P43,500 was taken up in 2020, the year of receipt. Shipping documents showed the term FOB destination and was delivered the year-end of 2019.

4. The sales of 2019 included P60,000 deposited by a customer for merchandise to be delivered in 2020.

5. The company acquired P700,000 12% bonds (dated January 1) with the intention to collect contractual cash flows of principal and interest up to maturity on January 1, 2020. Interest is payable semiannually on June 30 and December 31. The market yield for the bonds is 14% on January 1, 2020, 13% on December 31, 2020, and 15% on December 31, 2021. The bonds mature in three years. The fair value of the investments are as follows: January 1, 2020, P666,603; December 31, 2020, P676,292; and December 31, 2021, P687,316. The accountant recorded the semiannual receipts of interest and the annual changes in fair value.

6. On January 1, 2020, the company started the construction of the building for its new branch in Northern Luzon. It is financed by a P5,000,000 14% 5-year loan. As of December 31, 2020, the building is already 2/3 complete, and was completed on June 30, 2021. The building has a useful life of 15 years. Interest incurred in relation to this building is part of finance cost.

7. On April 27, 2020, the company sold one of its land that is accounted for under the revaluation model for P5,550,000. The initial cost of the land was P1,000,000 and on December 31, 2019, was valued by an independent appraiser to be P4,280,000. The gain on sale was recorded as a credit to revaluation surplus.

8. Sold merchandise costing P46,000, for P57,500 which was shipped by the company FOB shipping point to a customer on December 29, 2020 and was recorded the same date. The customer was scheduled to receive the merchandise on January 2, 2021.

9. Merchandise purchases costing P19,800 were received December 30, 2020, but no entry was made for them because "they were ordered with a specified delivery of no earlier than January 10, 2021."

10. On February 20, 2021, a factory equipment costing P172,000 with an accumulated depreciation of P91,000 was sold for P69,000, and the equipment was credited equal to the amount of the proceeds.

11. The change in fair value of equity investment amounting to P36,000 was charged to profit or loss on December 31, 2021. It was noted that such investment is classified at fair value through other comprehensive income.

12. Goods consigned out to consignees as of December 31, 2021, are included in the inventory at invoice price of P150,000, which is 20 percent in excess of cost.

13. Doubtful accounts is established at 3% of the adjusted balance of accounts receivable. The accounts receivable as of December 31, 2021 is P740,000, whereas the allowance for doubtful accounts as of December 31, 2021 is P2,500 credit balance. There were no accounts written off nor recovered during 2021. No adjustment has been made with respect for provision for doubtful accounts.

14. Understatement in merchandise inventory on December 31, 2020 of P34,100 and overstatement in merchandise inventory on December 31, 2021 of P26,500 were due to error in footing.

15. Unused portion of the supplies expense was ignored as of the end of 2019, P11,850; at the end of 2020, P12,750; at the end of 2021, P13,650.

16. The board of directors approved a cash dividend of P1,242,000 on December 29, 2021 payable on January 29, 2022 to stockholders on record as of January 14, 2022. This was recorded on January 29, 2022 upon payment to qualified shareholders.

17. Adjustment for accrued interest income was overlooked as of the end of 2019, P12,000; at the end of 2020, P18,000; at the end of 2021; P24,000.

18. Unrecorded liabilities for the years ending December 31, 2019, 2020 and 2021 are as follows:

1. Accrued utilities: 2019, P14,000; 2020, P21,000; 2021, P28,000.

2. Unearned rent: 2019, P18,000; 2020; P27,000; 2021; P36,000.

Britney Corporation will accept proposed adjusting journal entries regardless of the amount.

Required - Prepare a working paper showing the corrected net income for the years ended December 31, 2019, 2020, and 2020, together with your proposed adjusting journal entries (the PAJEs should be numbered to correspond with the numbers in the additional information) and a the statement of retained earnings as of December 31, 2021. Use your documentation to answer the next 25 items.