Bulls, Inc. Statement of Profit or Loss For the Years Ended December 31, 2020 and 2019 (in Philippine peso) 2020 2019 Net sales 1,580,000.00 1.250,000.00 Operating expenses: Cost of sales 755,000.00 690,000.00 Selling and admin 485,000.00 365,000.00 Depreciation 29.000.00 18,000.00 Estimated loss from lawsuit 100,000.00 1,369,000.00 1,073,000.00 Profit 211.000.00 177,000.00 38 During the course of audit, the following additional information was obtained: a. The trading securities were acquired on December 31, 2019. The securities have a fair value of P67,000 at December 31, 2020. b. In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2020. C. As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2019 and by P17.500 at December 31, 2020 d. On January 1, 2019, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. Bulls depreciates equipment of this type by the straight-line method over a five-year life with no residual value. e. On July 1, 2020, fully depreciated equipment purchased for P21,000, was sold as scrap for P2.500. The only entry Bulls made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a current cost of P250,000 at December 31, 2020. f. Advertising and promotion expense for the year ended December 31, 2019 includes the P25,000 cost of printing sales catalogs for a special promotional campaign held in January 2020. g. Bulls was named as a defendant in a lawsuit in October 2020. Bulls' counsel is of the opinion that Bulls has a good defense, and does not anticipate any impairment of Bulls' assets or that any significant liability will be incurred. Nevertheless. Bulls' management wished to be conservative and, therefore, established a loss contingency of P100,000 at December 31, 2020.Problem 2 Bulls. Inc., a non-public enterprise, is negotiating a loan for expansion purposes and the bank requires audited financial statements. Before closing the accounting records for the year ended December 3], 2020. Bulls' controller prepared the following comparative financial statements for 2020 and 2019: Bulls, Inc. Statements of Financial Position December 31 . 2020 and 2019 [in Philippine peso) Assets Cash Trading securities Accounts receivable Allowance for doubtful accounts Inventories Property and equipment Accumulated depreciation Total assets Liabilities and Eguity Accounts payable and accrued liabilities Estimated liability from lawsuit Share capital, PlO par Share premium Retained earnings Total liabilities and equity 2020 275,000.00 78,000.00 487,000.00 {50,000.00} 425,000 .00 310,000.00 20" 1 50,000.00 78,000.00 392,000.00 37 (32,000.00) 307,000.00 21 7,000.00 [150,000.00] [121 000.001 1,375,000.00 420,000.00 100,000.00 260,000.00 130,000.00 465,000.00 I .375.000.00 991,000.!\" 347,000.00 260,000.00 130,000.00 254,000.00 991 1100.00