You are the audit manager on your firms audit of Zulu Corporation (the Company) as of and for the year ended December 31, 2022. The Company, which is engaged in electrical construction, prepares its financial statements on the basis of US GAAP. This is the initial year of the Companys existence as it was formed and commenced operations on January 1, 2022. It is also your firms initial audit of the Company. The Companys final, adjusted trial balance for 2022 is as follows.

	Debits	Credits
Cash	2,135,000
Accounts receivable	400,000
Allowance for doubtful accounts		25,000
Prepaid expenses	10,000
Properly and equipment	750,000
Accumulated Depreciation		75,000
Goodwill	2,500,000
Accumulated amortization		20,000
Accounts payable		225,000
Accrued expenses		25,000
Current income taxes payable		199,000
Deferred income tax		168,000
Note payable bank long-term		2,000,000
Common stock		1,000,000
APIC		1,000,000
Retained earnings
Contract revenues		50,000,000
Cost of contract revenues	48,000,000
Administrative expenses	500,000
Depreciation	75,000
Current income tax expense	199,000
Deferred income tax expense	168,000
TOTAL	54,737,000	54,737,000

Additional Information

The Company was formed when two brothers, Sam, and Barry Johnson, acquired all 10,000 shares of the Companys common stock ($100 par value) for a total purchase price of $2,000,000.

Immediately after formation, the Company borrowed, on a long-term basis, $2,000,000 from a local bank.

A combination of the Companys cash from the sale of its common stock and the money borrowed from the local bank was used to acquire all of the outstanding stock of Hardy Electrical Construction. The purchase was accounted for using the purchase method of accounting.

During the planning portion of your 2022 audit of the Companys financial statements, financial statement materiality was established at 5% of the Companys 2022 pretax income.

During your audit, two uncorrected misstatements were identified. In addition, one uncorrected misstatement was brought to the audit teams attention by the Companys CFO.

A summary of the uncorrected misstatements (all of which management has indicated they do not want to correct) are as follows.

Failure to accrue administrative (non job related) unpaid payroll	30,000
Failure to accrue interest on the company's long-term debt	25,000
An unrecorded (non job related) account payable*	26,000

*Brought to the audit team's attention by the company CFO

Required

1.- Calculate financial statement materiality based upon 5% of the Companys 2022 pretax earnings based solely on the final adjusted trial balance previously presented.

2.- Complete a summary of the identified and unrecorded misstatements using the firms practice aid which is set forth below.

	Pretax income	Equity	Working capital
Amounts per trial balance
Misstatements increase (decrease)
(Insert item description)
Adjusted amounts

3.- Calculate the Companys tangible net worth as of 12.31.22, based upon the final adjusted trial balance presented above, without regard to any possible adjustment based on the misstatements identified in item 2 above.