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 2018.

b. The records of the client revealed the following information:

2018 2019 2020

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:

2018 2019 2020

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 2018 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 2018?

a. P330, 924

b. P332, 400

c. P362, 400

d. P402, 912

2) What is the correct restated retained earnings beginning in 2020?

a. P186, 450

b. P311, 450

c. P369, 100

d. P330, 924

3) What is the correct net income in 2020

a. P502, 100

b. P356, 757

c. P481, 757

d. P475, 926

4) What is the effect of the errors to the 2020 working capital?

a. P8, 700

b. P55, 445

c. P52, 115

d. P116, 300

5) What is the carrying value of the building as of December 31, 2020?

a. None

b. P675, 902

c. P630, 000

d. P591, 415