Reference no: EM132843506
Question - You are auditing for the first time, the Financial Statements of QRS Inc. for the period ended December 31, 2020.
In the course of your audit you discovered the following:
a. The following items were consistently omitted for each year:
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2017
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2018
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2019
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2020
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Prepayments
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P25,000
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P22,000
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P27,000
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P26,000
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Accrued Expenses
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30,000
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35,000
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32,000
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34,000
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Unearned Income
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10,000
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12,000
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13,000
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15,000
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Accrued Income
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20,000
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18,000
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16,000
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19,000
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b. Deliveries of merchandise to Customers on December 31 of each year, were recorded as sales upon collection the following year:
Selling Price
2018 P126,000
2019 147,000
2020 133,000
The physical count of inventories was done to all merchandise on hand as of December 31 (before any deliveries) of each year. Goods were priced to sell at 40% mark-up based on cost.
AUDITING PROBLEMS MIDTERM EXAMINATION
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c. Organization cost amounting to P400,000 at the beginning of 2017 was capitalized and amortized over 5 years starting 2017.
d. The company received a building as a donation from the city government on April 30, 2018 with a condition that the company shall use the building as a manufacturing plant for twenty years employing local personnel from the area. The fair value of the said asset was P3M by the time of the donation. The company incurred P500,000 in remodelling cost bringing the asset to a useful condition by July 1, 2018.
The company is yet to recognize the building donated and has simply charged to 2008 expense the remodelling cost.
e. The co registered. the following net income from its inception of operations to the current year:
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2017
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2018
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2019
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2020
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Net income
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P2,500,000
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P1,850,000
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P2,250,000
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P2,700,000
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Requirements -
1. What is the correct net income in 2019?
2. What is the correct net income in 2020?
3. What is the correct Retained Earnings, end in 2018?
4. What is the effect of the errors to the 2020 working capital?
5. What is the retroactive adjustment to the Retained Earnings beginning 2020 as a result of your audit of the Organization Cost?
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