You are auditing the financial statements of DEF Corp. for the year ended December 31, 2020. This is the first time the company's books shall be audited since its inception of operation in early 2018. The following were your significant findings:

a. The following accruals were consistently omitted at the end of each year:

2020 2019 2018

Salaries 24, 000 22, 000 20, 000

Utilities 3, 500 3, 200 2, 900

Interest expense 12, 400 13, 400 11, 600

Interest income 25, 000 22, 500 20, 000

b. The company's December 31 deliveries of merchandise to customers were recorded as sales the following period. All sales were made under FOB shipping point term. Physical count of goods were done on December 30 of each year.

2020 2019 2018

Selling price 50, 000 70, 000 65, 000

Cost of merchandise 30, 000 45, 500 45,500

c. The company also received the following amounts from customers as advance payments for deliveries made the following year. The company recorded the collections as sales upon receipt of cash.

2020 2019 2018

Cash advances 20, 000 21,500 19, 400

d. The following items were also not set up by the end of each year.

2020 2019 2018

Unused supplies 3, 500 4, 000 2, 900

Prepaid advertising 2, 100 5,000 6,700

e. You also discovered that the building the company is occupying was a contribution from one of its stockholder in exchange of 50, 000, P10 par value shares. The appraised value of the building at that time was P800, 000. The asset was recorded by the company over 20 years under straight line method and an assumed salvage value of P50, 000.

f. Unaudited records show the following information:

2020 2019 2018

Retained earnings, end 642, 900 432, 400 215, 000

Net income 310,500 267, 400 215, 000

The only other entry affecting the retained earnings account were the dividend payments made at the beginning of each year. It is the company's practice to declare dividends at the end of each year to be paid at the beginning of the following year. Dividends declared at the end of 2020 to be paid in 2021 was at P150, 000.

Requirements:

1. What is the correct 2018 net income?

a. 195,200

b. 286, 200

c. 240, 700

d. 145, 200

2. What is the correct 2020 net income?

a. 290, 300

b. 275, 300

c. 305, 300

d. 140, 300

3. What is the effect of the errors to the 2020 retained earnings, beginning?

a. 34, 100 over

b. 134, 100 over

c. 54, 300 over

d. 204, 300 over

4. What is the effect of the errors to the 2020 working capital?

a. 9, 300over

b. 159, 300 over

c. 9, 300 over

d. 109, 300 over

5. What is the correct retained earnings at the end of 2020?

a. 443, 500

b. 483, 600

c. 438, 600

d. 588, 600