Problem 9 Schmidt Corporation is in the process of negotiating a loan for expansion purposes. Its books and records have never been audited and the bank has requested that an audit be performed. Schmidt has prepared the comparative financial statements as at and for the years ended December 31. 2020 and 2019. as shown in the next page. During the course of the audit. the following additional facts were determined: 1) An analysis of collections and losses on accounts receivable during the past 2 years indicates a drop in anticipated losses due to bad debts. After consultation with management. it was agreed that the allowance for doubtful accounts should be P32.000 at December 31, 2020. 2) An analysis of equity securities held for trading revealed fair values as follows: December 31. 2019 P75.000 December 31. 2020 85.000 3) The merchandise inventory as of December 31, 2019 was overstated by P8900 and the merchandise inventory at December 31, 2020 was overstated by P13.600. 4) On January 2. 2019. equipment costing P36,000 (estimated useful life of 10 years and residual value of P6,000) was incorrectly charged to selling expenses. Schmidt use the straight-line depreciation method. In 2020, full depreciated equipment (with no residual value) that originally cost P20.000 was sold as scrap for P3,000. The company credited the proceeds of P3,000 to the equipment account. 5) An analysis of 2016 operating expenses revealed that Schmidt charged to expense a 4-year insurance premium of P12,000 on January 2. 2016. No adjusting entries were made at the end of 2016, 2019, and 2020. 6) The allowance for doubtful accounts as at December 31. 2020 and 2019 is P37,000, and P18,000. respectively. 7) The accumulated depreciation as at December 31, 2020 and 2019 is P121,600 and P106,4001 respectively. 8) In 2020, Schmidt issued 3,000 shares. P10 par, at P1250 per share SCHMIDT CORPORATION STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2020 AND 2019 (In pesos) 2020 2019 ASSETS Current Assets Cash 183.000 2.000 Held for trading equity securities. at cost 78,000 78,000 Accounts receivable - net 355.000 278.000 Merchandise inventory 207.000 202.000 823 000 560 000 Total Current Assets I I Noncurrent Assets Pro a and e ui mentcost 45 400 63100 TOTAL ASSETS 868 400 623.100 EQUITY AND LIABILITIES Llabltltles Accounts payable 121 :400 196,100 Equity Ordinary share capital 260,000 180,000 Share premium 20,000 Retained earnings 467,000 247,000 Total Eguijry 747.000 427,000 TOTAL EQUITY AND LIABILITIES 868:400 623,100 SCHMIDT CORPORATION STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In pesos) Ordinary Share Retained Total Shares premium earnings Eguity Balances as at January 1, 2020 180,000 247,000 427,000 Issuance of ordinary shares 80,000 20,000 100,000 Net income 220,000 220,000 Balances as at December 31I 2020 260:000 20,000 467,000 747,000 Balances as at January 1, 2019 180,000 68,000 248,000 Net income 195,000 195,000 Dividends declared 16,000 16,000 Balances as at December 31 2019 180 000 247 000 427 000 I SCHMIDT CORPORATION STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019 (In pesos) 2020 2019 SALES 1,000,000 900,000 COST OF SALES (430,000) (395,000) GROSS PROFIT 570,000 505,000 OPERATING EXPENSES (350,000) (310,000) NET INCOME 220,000 195,000 Required: a) Prepare a corrected statement of income for the years ended December 31, 2020 and 2019. Disregard income tax. b) Prepare a corrected statement of financial position as at December 31, 2020 and 2019. 0) Prepare a statement of cash ows for the year ended December 31, 2020, using the indirect method