Reference no: EM133121006

Question - You were engaged for the first time audit of the financial statements of Frank Corp., as of and for the period ended December 31, 2020. The company, which started operations at the beginning of 2018 is in the business of textile distribution. Your examination of the company's books revealed the following:

A. The company reported net income amounting to P568,200, P814,900 and P625,300 for 2018, 2019 and 2020 respectively.

B. The following accruals and deferrals were consistently omitted at the end of each year:

2018 2019 2020

Accrued utilities expense 5,000 9,000 2,000

Prepaid rent expense 2,500 1,200 1,600

Accrued salaries expense 9,000 2,000 1,500

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 excluded from the physical count conducted every December 31:

2018 2019 2020

Sales price 25,000 20,000 34,000

Cost of goods 15,000 12,000 20,400

D. The following goods were received from suppliers as of each year-end, but were recorded as purchases only upon cash payment the following year. All purchases were made FOB Destination and the related inventories were included in the physical count since they were already on hand as of the count date.

2018 2019 2020

Purchase price 25,000 22,000 24,000

E. You discovered that minor repairs done on the company's warehouse costing P112,500 at the beginning of 2019 was charged to the warehouse account and was depreciated over the remaining life of the warehouse which was 9 years.

Required -

1. What is the adjusted net income for 2018?

2. What is the adjusted net income for 2019?

3. What is the adjusted net income for 2020?

4. What is the retroactive adjustment to the retained earnings beginning 2020?

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