+. PROBLEM NO. 2 Comprehensive Youhavebeenasked by aclientto audit the financial statements of Half-Hearted Company forthefirsttime.In examining the books, you found out that certain adjustments had been overlooked at the end of 2015 and 2016. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 2015 2016 P10,000 Merchandise inventory, end overstated $8,000 understated Advances to supplier were recorded as purchases but the merchandise was 20,000 40,000 received in the followingyear: Advances from customers recorded as sales but the goods were delivered in 20,000 70,000 the followingyear: Improvements on building had been charged to expense on January 1, 2015. Improvements have a life of 5 years. On January 1, 2015, an equipment costing $40,000 was sold for $20,000. At the date of sale, the equipment had an accumulated depreciation of #15,000. The cash received was recordedasotherincomein2015. Questions: 100,000 Based on the above and the result of your audit, answer the following: 36. Whatisthe total effect of the errors on the 2015 netincome? a. Understatedby45,000 b. Understatedby25,000 c. Overstated by 115,000 d. Understated by 5,000 37. Whatisthe total effect of the errors on the 2016 net income? a. Overstatedby32,000 b. Overstatedby8,000 c. Overstated by 68,000 d. Overstated by 38.000 38. What is the total effect of the errors on the company's working capital at December 31, 2016? a. Overstatedby22,000 c. Overstated by 70,000 b. Understatedby48,000 d. Overstated by 30,000 39. What is the total effect of the errors on the balance of the company's retained earnings at December 31, 2016? a. Understated by 13,000 b. Understated by 17,000 c. Overstated by 183.000 d. Overstated by 33,000 40. Necessaryadjustingjournalentries at December 31,2016 wouldrequireanet a. DebittoR/E45,000 b. CredittoSales50,000 c. Credit to Purchases 20,000 d. Debit to Equipment40,000