In the course of your audit for the first time of STU Inc. financial statements, your audit staff summarized the following audit findings:

a.This is the first year the financial statements of STU Inc. had been subjected to audit since the inception of its operations in early 2008.

b.The recordsof the client revealed the following information:

2008

2009

2010

Net income

P345, 800

P476, 900

P499, 800

Dividend paid

210, 000

250, 000

275, 000

c.The client had used cash basis of accounting to account for its receipts and disbursements. The following summarized unrecorded item each year end:

2008

2009

2010

Unused supplies

2, 600

4, 500

3, 900

Salaries payable

15, 000

13, 500

14, 100

Receivable from customers

54, 000

29, 600

40, 500

Payable to supplier

25, 000

14, 200

21, 600

d.The Company had been occupying a building from its inception of operations for its sales and administrative offices. The building was leased from XYZ Corp. for a 10 year non-cancellable period. The lease agreement required the company to pay P125, 000 annually at the beginning of each lease year. The same had been charged by the company to rental expense. The building had an estimated life of 15 years and building, considering circumstances in the real estate industry in early 2008 was found to be at P900, 000. The prevailing discount rate appropriate for the transaction is at 10%.

Required:

1.What is the correct net income in 2008?

a.P330, 924b. P332, 400c. P362, 400d. P402, 912

2.What is the correct restated retained earnings beginning in 2010?

a.P186, 450b. P311, 450c. P369, 100d. P330, 924

3.What is the correct net income in 2010?

a.P502, 100b. P356, 757c. P481, 757d. P475, 926

4.What is the effect of the errors to the 2010 working capital?

a.P8, 700b. P55, 445c. P52, 115d. P116, 300

5.What is the carrying value of the building as of December 31, 2010?

a.Noneb. P675, 902c. P630, 000d. P591, 415