Chapter 1: Audit Planning and Misstatement Case 5 - Effects of errors in net income and retained earnings Aylen, a CPA was engaged by Balong-Bato Corporation in 2023 to examine its books and records and to proposed any adjustments if necessary. During the audit process, Aylen noted the following on its working paper: [1.] A physical count of inventory was made at the end of 2021 and 2022 , by the audit procedures performed the following were noted: [2.] Balong-Bato had failed to record sales commissions payable of P12,000 and P5,000 at the end of 2022 and 2023 , respectively. [3.] Baloing-Bato also failed to recognize supplies on hand of P3,000 and P5,000 at the end of 2022 and 2023 , respectively. [4.] Improvements in machinery and equipment of P180,000 had been debited to expense account at the end of April 2020. Improvements made increase the capacity of the machinery and equipment and estimated to have 10 -year life. The company's policy is to compute depreciation to the nearest month using straight line method. [5.] Dividends have been declared on December 30 in 2021 and 2022 but had not been entered in the books until payment was made. [6.] The retained earnings account appeared as shown below on the date Yona began the audit. Chapter 1: Audit planning and Misstatement Determine the following as a result of your audit: 1. How much is the adjusted net income in 2021? 2. How much is the adjusted net income in 2022 ? 3. How much is the adjusted net income (loss) in 2023? 5. How much is the adjusted retained eamings as of Decemings as of December 31,2023 ? 6. How much is the adjusted retainedearning rearnings Case 6-Effects of errors in net incomer 31, year-end financial statement contained the following errors: EndinginventoryP100,000overstatedDecember31,2022P90,000understatedDecember31,2023 Depreciation expense 20,000 overstated An insurance premium of P90,000 was expensed in 2021 covering the years 2021,2022 , and 2023. In addition, on December 28, 2023, a fully depreciated machinery was sold for P320,000 cash, but the sale was not recorded until 2024 . No corrections have been made for any of the errors. Determine the following as a result of your audit: (indicate whether an overstatement of understatement - e.g., 45,000 overstated) 1. What is the total effect of the errors on the 2022 net income? 2. What is the total effect of the errors on the 2023 net income? 3. What is the total effect of the errors on company's retained earnings as of December 31,2023 ? Case 7 - Proposed Adjusting Journal Entries (PAJE) Salapan Corporation, a manufacturer of high-quality computers is under your audit for the first time, relative procedures were performed by the auditor and revealed the following transactions that affect the books and balances of Salapan at the end of business year 2023 before any adjustments and closing entries are prepared. [1.] On December 31, 2023, a count was made on the company's warehouse of its inventory and revealed that an item of high-speed computer was counted twice, the inventory cost is P200,000. The company uses perpetual inventory system. Chapter 1: Audit Planning and Misstatement [2.] Your inquiry indicates that in previous year, Salapan provides 3% of credit sales as uncollectible. At the beginning of 2023 , the management revised its estimate of uncollectible accounts by decreasing to 2%. Sales on account for 2022 and 2023 were P7,500,000 and 8,200,000, respectively. [3.] A two-year insurance policy to cover future casualty was purchased last January 1, 2023 for P150,000. The amount was debited to insurance expense when paid. No adjustment was made yet. [4.] Salapan purchased an anti-static computer tool at the beginning of 2023 with estimated useful life of 6-years and depreciated using straight line method. Salvage value of machine is deemed immaterial. The cost of P600,000 was charge to repairs expense when bought and no adjustment is made for this transaction. [5.] Upon inspection of the book, a commission for P65,000 was recorded as expense in 2023 , further investigation reveals that such commission is paid in January 14,2023 when the full amount of credit sales made in 2022 was collected from the customer. Determine the following as a result of your audit: 1. The proposed adjusting journal entry (PAJE) in item 1 is? 2. The proposed adjusting journal entry (PAJE) in item 2 is? 3. The proposed adjusting journal entry (PAJE) in item 3 is? 4. The proposed adjusting journal entry (PAJE) in item 4 is? 5. The proposed adjusting journal entry (PAJE) in item 5 is? 6. Assuming that Salapan Corporation reported net income before any adjustments of P785,000, what is the correct net income for the yar ending December 31,2023