You were engaged to audit, for the first time, the financial statements of Lou Corporation for the period

ended December 31, 2020. The company which is into the distribution of construction materials and

supplies in various locations in the Central Luzon and Southern Luzon and has started its operations in

2018.

a. The unadjusted net income were as follows:

2018 P1,089,000

2019 982,000

2020 1,123,000

b. Accrued salaries expense at the end of the following years were consistently omitted:

December 31, 2018 P86,000

December 31, 2019 55,000

December 31, 2020 75,000

c. Office and store supplies are recognized as expense when paid. The following inventory of unused

supplies however existed as of the end of each year:

December 31, 2019 102,000

December 31, 2020 79,000

d. The following are the recorded invoice prices of construction materials and supplies in-transit to

customers by the end of each year. The goods were excluded from the year-end inventory count.

Gross profit margin is at 40% based on sales with a term FOB Destination.

December 31, 2018 P150,000

December 31, 2020 180,000

e. The following advanced payments to suppliers at the end of each year were recorded in the

purchases journal upon payment. Goods for the said advances however were only received the

following year.

December 31, 2019 P105,000

December 31, 2020 122,000

f. A major overhaul was done on one of the company's delivery trucks at the beginning of 2019. The

overhaul did not extend the truck's remaining life which was 3 years but it improved the truck's

operating efficiency and safety. The overhaul cost P150,000 and was charged by the company to

repairs and maintenance expense upon incurrence.

g. A three-year rent covering three years amounting to P180,000 for a warehouse being rented out in

Pampanga was collected in advance on June 30, 2018. The entire amount was recognized as income

upon receipt.

Requirements:

47. The correct 2018 net income is:

a. 823,000 c. 853,000

b. 883,000 d. 793,000

48. The correct 2019 net income is:

a. 1,380,000 c. 1,110,000

b. 1,440,000 d. 1,320,000

49. The corrected 2020 net income is:

a. 915,000 c. 1,179,000

b. 975,000 d. 1,035,000

50. The restrospective adjustment to retained earnings as a result of your audit in 2020 shall be:

a. 162,000 c. 192,000

b. 132,000 d. 74,000

51. The effect of the errors on 2020 total assets is:

a. 129,000 c. 7,000

b. 179,000 d. 57,000