auditing problem

PROBLEM 6: In the course of your audit of the Notes Receivable account of Dumbo Corp for the year ended December 31, 2018, you discovered the following information from the company's subsidiary ledger accounts: Balances per ledger Holt Company P 1,000,000 Colette Company 300,000 Audit notes: (a) The notes receivable with a coupon rate of 12% from Holt Company was received from sale of goods in the normal course of business. The note is dated January 1, 2017 and is due on December 31, 2019. The transaction was recorded by your client on the date of sale as follows: Notes receivable 1,000,000 Sales 1,000,000 Cost of sales 600,000 Inventories 600,000 The annual interest collections on the loan every December 31 were correctly recorded. (b) The 0% notes receivable from Colette Company dated December 31, 2017 was received for the sale of building having an original cost of P700,000 and a book value of P600,000. The terms of the sale require Colette to make a down payment of P150,000 and the balance payable in three equal annual installment every December 31. The prevailing rate of interest for this type of note was 12%. The transaction was recorded by your client on the date of sale as follows: Cash 150,000 Notes receivable 450,000 Accumulated Depreciation-BIdg. 100,000 Building 700,000 Page 4 of 11 18. How much is the adjustment to retained earnings on January 1, 2018, if any, as a result of your audit of notes receivable from Holt Company? a. 0 c. 288,220 b. 400,000 d. 311,780 19. How much is the adjustment to retained earnings on January 1, 2018, if any, as a result of your audit of notes receivable from Colette Company? a. 0 c. 132,994 b. 89,725 d. 239,275