PROBLEM 6-5 Comprehensive You have been asked by a client to audit the financial statements of Half-Hearted Company for the first time. In examining the books, you found out that certain adjustments had been overlooked at the end of 2020 and 2021. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: Merchandise inventory, end Advances to supplier were recorded as purchases but the merchandise was received in the following year: Advances from customers recorded as sales but the goods were delivered in the following year: Improvements on building had been charged to expense on January 1, 2020. Improvements have a life of 5 y o years. On January 1, 2020, an equipment costing P40,000 was sold for P20,000. At the date of sale, the equipment had an accumulated depreciation of P15,000. The cash received was recorded as other income in 2020. a. Understated by P45,000 b. Understated by $25,000 2020 P10,000 overstated 30,000 20,000 000.00% 100,000 Questions: Based on the above and the result of your audit, answer the following: 1. What is the total effect of the errors on the 2020 net income? 08129 2021 P8,000 understated c. Overstated by P115,000 d. Understated by P55,000 2. What is the total effect of the errors on the 2021 net income? a. Overstated by $32,000 c. Overstated by $68,000 b. Overstated by P42,000 d. Overstated by P38,000 40,000 3. What is the total effect of the errors on the company's working capital on December 31, 2021? a. Overstated by P22,000 b. Understated by $48,000 c. Overstated by P70,000 d. Overstated by $30,000 70,000 Chapter 6 Correction of Errors 210113 to noli20102 - 0 101ge 15 4. What is the total effect of the errors on the balance of the company's retained earnings on December 31, 2021? - a. Understated by P13,000 b. Understated by P17,000 5. Necessary adjusting journal entries on December 31, 2021 would require a 000 aast net a. Credit to R/E P45,000 b. Credit to Sales $50,000 d) 0500 c. Overstated by P183,000 d. Overstated by $33,000 MUS c. Credit to Purchases P20,000 d. Debit to Equipment P40,000 CARA