Reference no: EM132768568

Question - Karen Company reported net income for a 2-years period as follows:

2017 - Php 120,000

2018 - Php 180,000

In an audit of the financial statement for the year ended December 31, 2017, the following errors were discovered:

Advances to supplier in 2017 were recorded as purchases but the merchandise was received in the following year - Php 20,000.

Advances from customers in 2017 recorded as sales in 2017 but the goods were delivered in the following year - Php 50,000.

On December 31, the ending inventory was overstated by Php 25,000.

Required - Answer the following:

1. Compute for the adjusted net income in 2017 and 2018 and the Retained Earnings as of December 31, 2017 and 2018.

2. Give the effect of the error in the 2017 working capital

3. Prepare the adjusting entries assuming the respective errors were discovered in (a) 2017; (b) 2018 and (c) 2019.