Reference no: EM132979173
You were engaged to audit, for the first time, the financial statements of Lou Corporation for the period ended December 31, 2020. The company which is into the distribution of construction materials and supplies in various locations in the Central Luzon and Southern Luzon and has started its operations in 2018.
a. The unadjusted net income were as follows:
b. Accrued salaries expense at the end of the following years were consistently omitted:
December 31, 2018 P86,000
December 31, 2019 55,000
December 31, 2020 75,000
c. Office and store supplies are recognized as expense when paid. The following inventory of unused
supplies however existed as of the end of each year:
December 31, 2019 102,000
December 31, 2020 79,000
d. The following are the recorded invoice prices of construction materials and supplies in-transit to customers by the end of each year. The goods were excluded from the year-end inventory count.
Gross profit margin is at 40% based on sales with a term FOB Destination.
December 31, 2018 P150,000
December 31, 2020 180,000
e. The following advanced payments to suppliers at the end of each year were recorded in the purchases journal upon payment. Goods for the said advances however were only received the following year.
December 31, 2019 P105,000
December 31, 2020 122,000
f. A major overhaul was done on one of the company's delivery trucks at the beginning of 2019. The overhaul did not extend the truck's remaining life which was 3 years but it improved the truck's operating efficiency and safety. The overhaul cost P150,000 and was charged by the company to repairs and maintenance expense upon incurrence.
g. A three-year rent covering three years amounting to P180,000 for a warehouse being rented out in Pampanga was collected in advance on June 30, 2018. The entire amount was recognized as income upon receipt.
Requirements:
Problem 1: The correct 2018 net income is:
Problem 2: The correct 2019 net income is:
Problem 3: The corrected 2020 net income is:
Problem 4: The restrospective adjustment to retained earnings as a result of your audit in 2020 shall be:
Problem 5: The effect of the errors on 2020 total assets is: