Question
4-6 You audited the financial statements of PIS Corp. for the first time in 2021. The company started its operation in early 2019. Upon investigation,
4-6
You audited the financial statements of PIS Corp. for the first time in 2021. The company started its operation in early 2019. Upon investigation, you discovered the following information:
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The company reported the net income at P104,000, P140,000 and P160,000 in 2019, 2020, and 2021, respectively.
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The company consistently omitted the following:
| 2019 | 2020 | 2021 |
Prepaid insurance | 2,000 | 4,000 | 6,000 |
Accrued salaries | 7,500 | 6,200 | 8,300 |
Unearned rent | 5,000 | 6,000 | 7,000 |
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Deliveries of merchandise to customers at December 31 of each year end were recorded as sales upon collection the following year. The corresponding sales price of the said deliveries were P15,000, P12,000 and P14,000 in 2019, 2020, and 2021, respectively.
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Inventory counts were conducted on December 31 of each year before any deliveries and receipts were made on the said date. Sales were made consistently at a gross profit rate of 40% of sales.
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Purchases in transit at each year end amounted to P5,000 and P7,000 in 2020 and 2021 respectively. These were recorded as purchases upon receipt of the corresponding invoices in December.
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The company incurred pre-operating and organization costs totaling P80,000 in early 2019 which it had capitalized as intangible asset and amortized over 5 years.
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Improvements were made and completed early in 2019 on the leased office space costing P100,000 which it had capitalized to a leasehold improvements account and had depreciated over its life which was 10 years. The term of the non-cancellable lease however is 5 years without renewal option.
1. What is the effect of the errors to the 2019 working capital?_____ amount , understatement or overstatement ________
2. What is the correct net income in 2021?
3. What is the correct net income in 2019?
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