SHOW COMPLETE SOLUTION Problem 9 You were assigned to audit for the first the time the financial statements of Debie Inc. as of and for the year ended December 31, 2020. Debie Inc. is a distributor of a major clothing line in the Philippines and has started operations in early 2018 when 200,000 shares of its P10 par value ordinary shares were issued at par value. No audit has been made on its financial statements from its inception. The following information were gathered as a result of your audit investigations: The retained earnings general ledger entries from 2018 to current year appears below: Date Particulars Debit Credit Balance 7/1/ 2018 Fair value of a Land donated by a majority stockholder P950,000 P950,000 12/31 Net Income 1,928,000 2,878,000 2/3/ 2019 Excess over par value of additional 50,000 shares issued at P21 per share 550,000 3,428,000 6/31/ 20% Stock dividend declaration, fair value of shares on this date was at P22 per share 1,100,000 2,328,000 12/31 Net Income 2,124,000 4,452,000 8/2/ 2020 Loss on inventory due to flood 125,000 4,327,000 12/31/ Net Income 1,760,000 6,087,000 Audit notes: a. The following were omitted at each year end: 2018 2019 2020 Prepaid rent expenses P95,000 - P48,000 Accrued advertising expense - P50,000 35,000 Accrued rent income 80,000 40,000 - b. Collections from customers at each year-end for goods delivered the following year, were recorded as sales upon cash receipt. Good were not physically included in each year-end count. 2018 2019 2020 Selling price P150,000 P190,000 P120,000 Cost of inventories 90,000 114,000 72,000 c. The following equipment acquisitions were erroneously charged to repairs and maintenance expense account each year. It is the company's policy to depreciated equipment using straight-line method over 5 years. Moreover, full years depreciation is charged on the year of acquisition, none on the year of disposal. 2018 2020 Equipment acquisitions charged to repairs and maintenance..

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