Net income for Escudo Company for the years 2019 and 2020 is shown below. An audit of the

accounts, however, disclosed the following information:

YEAR 2019

Net income after tax P 24,650

Inventory understatement at year-end

Typewriter purchased at year-end charged -

to expense (10-year life) 4,000

Merchandise purchased on account not

recorded as liability but included -

in the inventory (5,000)

Unearned rent received taken up as income -

Accrued taxes unrecorded -

YEAR 2020

Net income after tax P 31250

Inventory understatement at year-end 2500

Typewriter purchased at year-end charged

to expense (10-year life) 4,000 -

Merchandise purchased on account not

recorded as liability but included

in the inventory -

Unearned rent received taken up as income - (1800)

Accrued taxes unrecorded - (3000)

1. The correct net income for 2019 is

a. P23,650 b. P24,250 c. P28,250 d. P33,250

2. The correct net income for 2020 is

a. P33,550 b. P28,250 c. P25,350 d. P23,550

3. What is the effect of the above errors to the 2020 beginning retained earnings?

a. P1,400 overstated

b. P4,000 understated

c. P3,600 understated

d. P1,000 overstated

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

a. P2,300 understated

b. P2,300 overstated

c. P4,800 understated

d. P4,800 overstated

5. What is the effect of the 2019 errors to 2020 net income?

a. P400 overstatement

b. P400 understatement

c. P4,600 overstatement

d. P4,600 understatement