Reference no: EM132977174

You are assigned to audit the financial statements of Rhea Corp. for the first time for the period ended December 31, 2020. In line with your audit, the following information were made available:

a. A collection for rental amounting to P45,000 of one of its idle properties covering the period July 1, 2019 to June 30, 2020 was received and recorded as rent income in in July 1, 2019.

b. The following were consistently omitted at each year end.

                                                  2018                  2019                  2020

Salaries payable                     5,500               3,00              9,900

Unused office supplies             5,400                9,000            6,100

Accrued royalty income             4,000              7,900         5,400

c. The following deliveries were made to customers at each year-end, but were recorded as sales only upon cash collection the following year. All sales were made FOB Shipping Point and the related inventories were included in the physical count conducted every December 31:

                           2018               2019               2020

Sales price         28,000          30,000            2,000

Cost of goods     15,400             17,400           13,200

d. A major repair cost improving the operating efficiency of an equipment was incurred at the beginning of 2018. The cost amounting to P55,000 was recognized as an outright repairs and maintenance expense. The equipment was acquired on January 2014 with a total useful life of 15 years.

e. Dividend amounting to P120,000 was declared on December 20, 2020 to stockholders as of the same date and were recorded upon payment the following year January 20, 2021.

f. The general ledger of the company's accumulated profits account contained the following information:

Date Particulars Debit Credit

1/1/18 Balance 625,400

1/3/18 Excess over par for ordinary shares issued 120,000

12/31/18 Net loss for the year 177,400

1/5/19 FMV of land donated by a majority stockholder 480,000

12/31/19 Net income for the year 214,300

1/3/20 Cash dividend payment, declared in 12/20/19 90,000

12/30/20 Loss on sale of an equipment 22,500

12/31/20 Net income for the year 421,700

12/31/20 Balance 1,571,500

Requirements:

Problem 1: What is the adjusted net loss for 2018?

Problem 2: What is the adjusted net income for 2019?

Problem 3: What is the adjusted net income for 2020?

Problem 4: What is the correct retained earnings ending balance 2020?

Problem 5: What is the effect of the errors to the 2020 working capital?