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  3. an entity reports profit of p2,000,000 for the yea

An entity reports profit of P2,000,000 for the year ended December 31, 20x1. The entity's...

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Accounting

An entity reports profit of P2,000,000 for the year ended December 31, 20x1. The entity's financial statements are authorized for issue on April 3, 20x2. The following events take place after December 31, 20x1:



On January 18, 20x12, the entity receives from another entity a letter of guarantee amounting to P800,000 in conjunction with the entity's bank loan application. The loan proceeds were received on January 22, 20x2.



On February 1, 20x2, a P1,000,000 lawsuit was filed against the entity for a malfunctioning product which was sold to a customer on December 28, 20x1. The entity's legal counsel believes that it is reasonably possible that they will lose the case.



On February 14, 20x2, a debtor who owes the entity P500,000 filed for bankruptcy.



On February 28, 20x2, a building with carrying amount of P1,800,000 on December 31, 20x1 was totally razed by fire. The entity filed for an insurance claim amounting to P1,600,000 on March 1, 20x1. The entity believes it is probable that the insurance claim will be approved.



Requirement: Compute for the adjusted profit for the year ended December 31, 20x1.

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