Rhazel Company whose fiscal year ends on November 30, is in the process of negotiating a loan for expansion purposes, and the bank has required audited financial statements. During the course of the audit, the following additional information was obtained: a. An account payable of P8,000 for merchandise purchased on November 23, 2017 was recorded in December 2017. This merchandise was included in inventory at November 30, 2017. b. Based on an aging of the accounts receivables as of November 30, 2017, it was estimated that P14,000 of the receivable will become uncollectible. The allowance for bad debts account has a credit balance of P5,000. c. A check for P1,800 from a customer to apply to his account was received on November 30, 2017 but was not recorded until December 2, 2017. d. A P3,000 insurance premium paid on November 30, 2017, on a policy expiring one year later was charged to Office Supplies. e. On June 1, 2017, a production machine purchased for P24,000, was charged to Accumulated Depreciation. Rhazel Company depreciates machines of this type on the straight-line method over a five-year life, with no salvage value. f. Research and development costs of P150,000 were incurred in the development of a patent which Rhazel Company expects to be granted during the fiscal year ending November 30, 2017. Rhazel Company initiated a five-year amortization of the P150,000 total cost during the fiscal year ended November 30, 2017. 8. During December 2017 a competitor company filed suit against Rhazel Company for patent infringement claiming P300,000 in damages. At December 31, 2017, Rhazel Company's legal counsel felt that the likelihood of losing the lawsuit was possible but not probable. No Provision has been booked for this lawsuit. h. The November 30, 2016 inventory was understated by P16,000. i. Audited Income Statement reflected net income of P450,000. 1. The net income for the fiscal year ended November 30, 2017 prepared by the client should be? Rhazel Company whose fiscal year ends on November 30, is in the process of negotiating a loan for expansion purposes, and the bank has required audited financial statements. During the course of the audit, the following additional information was obtained: a. An account payable of P8,000 for merchandise purchased on November 23, 2017 was recorded in December 2017. This merchandise was included in inventory at November 30, 2017. b. Based on an aging of the accounts receivables as of November 30, 2017, it was estimated that P14,000 of the receivable will become uncollectible. The allowance for bad debts account has a credit balance of P5,000. c. A check for P1,800 from a customer to apply to his account was received on November 30, 2017 but was not recorded until December 2, 2017. d. A P3,000 insurance premium paid on November 30, 2017, on a policy expiring one year later was charged to Office Supplies. e. On June 1, 2017, a production machine purchased for P24,000, was charged to Accumulated Depreciation. Rhazel Company depreciates machines of this type on the straight-line method over a five-year life, with no salvage value. f. Research and development costs of P150,000 were incurred in the development of a patent which Rhazel Company expects to be granted during the fiscal year ending November 30, 2017. Rhazel Company initiated a five-year amortization of the P150,000 total cost during the fiscal year ended November 30, 2017. 8. During December 2017 a competitor company filed suit against Rhazel Company for patent infringement claiming P300,000 in damages. At December 31, 2017, Rhazel Company's legal counsel felt that the likelihood of losing the lawsuit was possible but not probable. No Provision has been booked for this lawsuit. h. The November 30, 2016 inventory was understated by P16,000. i. Audited Income Statement reflected net income of P450,000. 1. The net income for the fiscal year ended November 30, 2017 prepared by the client should be
