Reference no: EM133188590

Question - Propitious, Inc., is an entity whose shares are traded in the over-the-counter market. At Dec. 31, 2020, Propitious had 6,000,000 authorized shares of P10 par value ordinary shares, of which 2,000,000 shares were issued and outstanding. The shareholders' equity accounts at Dec. 31, 2020, had the following balances.

Ordinary shares P20,000,000

Share premium 7,500,000

Retained earnings 6,470,000

Transactions during 2021 and other information relating to the shareholders' equity accounts were as follows:

Jan. 5 - Issued at P54 per share, 100,000 shares of P50 par value, 9% cumulative convertible preference shares. Each share of preference is convertible, at the option of the holder, into two ordinary shares. Propitious had 600,000 authorized preference shares.

Feb. 1 - Reacquired 20,000 of its ordinary shares for P16 per share. Propitious uses the cost method to account for treasury shares.

Apr. 30 - Sold 500,000 shares (previously unissued) of P10 par value ordinary shares to the public at P17 per share.

June 18 - Declared a cash dividend of P1 per ordinary share, payable on July 12, to shareholders of record on July 1.

Nov. 10 - Sold 10,000 treasury shares for P21 per share.

Dec. 14 - Declared the yearly cash dividend on preference shares, payable on Jan. 14, 2022, to shareholders of record on Dec. 31, 2021.

On Jan. 20, 2022, before the books were closed for 2021, Propitious became aware that the ending inventories at Dec. 31, 2020, were understated by P300,000 (the after-tax effect on 2020 net income was P210,000). The appropriate correcting entry was recorded the same day.

After correcting the beginning inventory, net income for 2021 was P4,500,000.

Required - Based on the above and the result of your audit, answer the following:

1. The adjusted Retained Earnings balance as of Jan. 1, 2021 is?

2. The Retained Earnings balance as of Dec. 31, 2021 is?

3. The total share premium as of Dec. 31, 2021 is?

4. The total shareholders' equity as of Dec. 31, 2021 is?

5. Which statement is correct regarding audit of investment securities?

a. An auditor's audit objective is to determine whether the securities are authentic.

b. Examination of paid checks issued in payment of securities purchased is the most effective procedure to verify existence.

c. In performing tests of the carrying amount of investments in equity securities, the auditor would usually refer to the quoted market prices of the securities.

d. If a client has a large and active investment portfolio that is kept in a bank safe-deposit box and the auditor is unable to count the securities at the end of the reporting period, the auditor most likely will request the bank to confirm to the auditor the contents of the safe deposit box at the end of the reporting period.