You were assigned to audit the financial statements of your first-time client, SKY Corporation, as of and for the period ended December 31, 2018. Based on their December 31, 2018 trial balance, you were able to obtain the following balances of the accounts relevant to your audit: Debit Credit Accounts receivable 1,987,500 Allowance for bad debts 152,500 Retained earnings 6,365,500 Sales 12,595,000 Sales returns 460,000 Sales discounts 824,000 Bad debts expense 80,000 Audit notes: a. The balances in the trial balance are balances before any year-end adjustments. b. The beginning balance of SKY's accounts receivable is P1,728,000. The entity sells at 2/10, n/30. C. The only transaction during the year that affected the retained earnings balance is the declaration of mid-year dividends of P1,000,000. d. At interim (September 30, 2018), sales totaled to P8,000,000; the entity provided an interim bad debts expense which is 1% of interim sales; and a receivable from a customer for P13,900 was written off. e. SKY is consistently using percentage of accounts receivable, which you ascertained to be reasonable. f. Sales returns for P45,000 was received and recorded on January 6, 2018. These returns are related to sales made on December 30, 2017. g. Receivables for P200,000 collected last January 7, 2018 were related to sales made on December 31, 2017. The related discount was recorded in 2018. h. The following subsequent events are not recorded by the entity in its 2018 books: Sales returns related to 2018 sales, P30,000, were received on January 2, 2019. Receivables totaling to P170,000 were collected in the period from January 1 to January 10, 2019. These receivables are all related to 2018 sales and are all within the discount period.Based on the year-end count of your client, Pasado Corporation, conducted last December 31, 2018, the ending inventory is P2,750,000. However, possible theft of inventories is suspected. To check the reasonableness of the ending inventory, you estimated your client's ending inventory using retail inventory method. The following information related to your client's ending inventory are as follows: Cost Retail Inventory, January 1, 2018 1,945,500 4,624,800 Purchases 11,268,950 20,561,500 Purchase returns 460,500 752,300 Purchase discounts 265,000 Freight in 178,900 Departmental transfer in 1,125,500 1,865.200 Departmental transfer out 800,000 1,550,000 Normal breakages 250,450 Sales 18,562,900 Sales discounts 1,450,000 Sales returns 567,890 Discounts granted to employees 244,000 Mark up 1,500,000 Mark up cancellation 300,000 Mark down 1,400,000 Mark down cancellation 100,000 During the year, inventories with total selling price of P349,500 (total cost is P196,000) were damaged and are considered unsellable