PROBLEM 6

PROBLEM 6 (RNB COMPANY): The condensed income statement of RNB Company for the year ended December 31, 2022 is presented below: RNB Company Income Statement For the year ended December 31, 2022 Sales P1,000,000 Cost of Goods Sold (600,000) Gross Profit 400,000 Operating expenses [150,000) Operating Income 250,000 Other income (expense) 50,000 Income before tax 300,000 Income tax expense (30%) (90,000) Net Income 210,000 The December 31, 2022 audit of the company's financial statements disclosed the following errors: 1. January 1, 2022 inventory is understated by P17,000. 2. December 31, 2022 inventory is understated by P31,000. 3. Accrued interest income of P5,000 and unearned revenue of P11,000 in 2021 were not recognized in the company's books. 4. Accrued salaries expense of P4,000 and prepaid rent of P6,000 in 2022 were not recognized in the company's books. 5. Sales of P5,000 were not recorded until January 2023, although the goods were shipped in December 2022, and were excluded from the December 31 physical inventory. 6. Purchases of P30,000 made in December 2022 were not recorded, although the goods were received and properly included in the December 31 physical inventory. 7. A machine was sold for P10,000 on July 1, 2022 and the proceeds were credited to the Sales account. The machine was acquired on January 1, 2019 for P60,000. At that time, it had an estimated life of 6 years with no residual value. Also, no depreciation was recorded on the machine in 2022. B. A patent was acquired at the beginning of 2022 for P350,000. No amortization expense has been recorded for it since its acquisition. The patent had a 10-year useful life with no residual value on the date of acquisition. 9. A 3-year fire insurance policy purchased on April 1, 2020 for P75,000 was expense outright on the year of purchase. 10. The beginning retained earnings before any audit adjustments is P248,525. Dividends declared during the year amounted to P50,000