You audited the financial statements of PIS Corp. for the first time in 2022. The company started its operation in early 2020. Upon investigation, you discovered the following information: a. The company reported the net income at P104,000, P140,000 and P160,000 in 2020, 2021, and 2022, respectively. b. The company consistently omitted the following: 2020 2021 2022 Prepaid insurance 2,000 4,000 6,000 Accrued salaries 7,500 6,200 8,300 Unearned rent 5,000 6,000 7,000 c. Deliveries of merchandise to customers at December 31 of each year end were recorded as sales upon collection the following year. The corresponding sales price of the said deliveries were P15,000, P12,000 and P14,000 in 2020, 2021, and 2022, respectively. Inventory counts were conducted on December 31 of each year before any deliveries and receipts were made on the said date. Sales were made consistently at a gross profit rate of 40% of sales. d. Purchases in transit FOB destination at each year end amounted to P5,000 and P7,000 in 2021 and 2022 respectively. These were recorded as purchases upon receipt of the corresponding invoices in December. The in-transit inventories were properly excluded from the inventory balances at year-end. e. The company incurred pre-operating and organization costs totaling P80,000 in early 2020 which it had capitalized as intangible asset and amortized over 5 years. f. Improvements were made and completed early in 2020 on the leased office space costing P100,000 which it had capitalized to a leasehold improvements account and had depreciated over its life which was 10 years. The term of the non-cancellable lease however is 5 years without renewal option. Questions: Considering the above data and the result of the audit, determine the following: 1. What is the correct net income in 2020? What is the retroactive adjustment to the 2022 beginning retained earnings? 2. What is the correct net income in 2022?
You audited the financial statements of PIS Corp. for the first time in 2022. The company started its operation in early 2020. Upon investigation, you discovered the following information:
a. The company reported the net income at P104,000, P140,000 and P160,000 in 2020, 2021, and 2022, respectively.
b. The company consistently omitted the following:
2020 2021 2022
Prepaid insurance 2,000 4,000 6,000
Accrued salaries 7,500 6,200 8,300
Unearned rent 5,000 6,000 7,000
c. Deliveries of merchandise to customers at December 31 of each year end were recorded as sales upon collection the following year. The corresponding sales price of the said deliveries were P15,000, P12,000 and P14,000 in 2020, 2021, and 2022, respectively. Inventory counts were conducted on December 31 of each year before any deliveries and receipts were made on the said date. Sales were made consistently at a gross profit rate of 40% of sales.
d. Purchases in transit FOB destination at each year end amounted to P5,000 and P7,000 in 2021 and 2022 respectively. These were recorded as purchases upon receipt of the corresponding invoices in December. The in-transit inventories were properly excluded from the inventory balances at year-end.
e. The company incurred pre-operating and organization costs totaling P80,000 in early 2020 which it had capitalized as intangible asset and amortized over 5 years.
f. Improvements were made and completed early in 2020 on the leased office space costing P100,000 which it had capitalized to a leasehold improvements account and had
Questions: Considering the above data and the result of the audit, determine the following:
1. What is the correct net income in 2020? What is the retroactive adjustment to the 2022 beginning
2. What is the correct net income in 2022?
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