Better corporation started its operations on July 10,2019, by issuing ordinary shares amounting to P75,000. Net income
Question:
Better corporation started its operations on July 10,2019, by issuing ordinary shares amounting to P75,000. Net income for the remainder of 2019 was P30,000 and for 2020 it was P56,250. Better corporation has not issued additional shares and has not declared dividends since July 1,2019. A comparative balance sheet prepared by the accountant of the company is shown below:
Better Corporation |
Balance Sheets |
December 31,2020 and 2019 |
Assets |
2020 2019 |
Cash 22,650 16,650 |
Accounts receivable 67,500 48,750 |
Merchandise inventory 60,000 42,600 |
Equipment 45,000 45,000 |
Total assets 195,150 153,000 |
Liabilities and equity |
Accounts payable 33,900 33,000 |
Notes payable to bank - 15,000 |
Share capital (P1 par value) 75,000 75,000 |
Retained earnings 86,250 30,000 |
Total liabilities and equity 195,150 153,000 |
The following errors were discovered by the auditor who was engaged in January 2021 to examine the financial statements of the Corporation:
a. Inventory was overstated by P4,500 at the end of 2010.
b. Accrued liabilities of P1,800 were not recorded at the end of 2020.
c. Inventory of supplies of P1,050 was not recorded as an asset at the end of 2019, and inventory of supplies of P450 at the end of 2020 was debited to an expense.
d. Accrued revenue of P1,200 at the end of 2019 was not recorded as receivable.
e. An allowance for bad debts equal to 6% of accounts receivable should be established at the end of the year. No accounts receivable were written off during the two years.
f. Depreciation of P1,500 was not recorded in 2019 and depreciation of P3,000 was not recorded in 2020.
g. The merchandise inventories at the end of 2019 and 2020 did not included merchandise that was then in transit and to which the company had title. These shipments of P5,250 and P3,250 were recorded as purchases in January 2020 and 2021, respectively.
Determine the corrected net income for 2019.
Expert Answer:
Solution Net Income is the excess of sales revenue over all the expenses incurred in the bus... View the full answer
