During the course of your examination of the financial statements of H Co., a new client, for the year ended December 31, 2020, you discover the following:Inventory at January 1, 2020, had been overstated by P3,000.Inventory at December 31, 2020, was understated by P5,000.An insurance policy covering three years had been purchased on January 2, 2019, for P1,500. The entire amount was charged as an expense in 2019. During 2020 the company received a P1,000 cash advance from a customer for merchandise to be manufactured and shipped during 2021. The P1,000 had been credited to sales revenues. The company's gross profit on sales is 50%. Net income reported on the 2020 income statement (before reflecting any adjustments for the above items) is P20,000. The proper net income for 2020 is

The question is based on the concept of Financial Accounting.

Answered: During the course of your examination…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 5C: It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019...

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During the course of your examination of the financial statements of H Co., a new client, for the year ended December 31, 2020, you discover the following:

Inventory at January 1, 2020, had been overstated by P3,000.
Inventory at December 31, 2020, was understated by P5,000.
An insurance policy covering three years had been purchased on January 2, 2019, for P1,500. The entire amount was charged as an expense in 2019.

During 2020 the company received a P1,000 cash advance from a customer for merchandise to be manufactured and shipped during 2021. The P1,000 had been credited to sales revenues. The company's gross profit on sales is 50%.

Net income reported on the 2020 income statement (before reflecting any adjustments for the above items) is P20,000.

The proper net income for 2020 is

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