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You have been engaged to prepare audited financial statement figures for BOURNE, Inc. The records are in agreement with the following balance sheet: BOURNE, INC Balance Sheet December 31, 2007 Assets Liabilities and Capital Cash P10,000 Accounts Payable P10,000 Accounts receivable 12,000 Notes Payable 3,000 Notes receivable 13,000 Common Stock 20,000 Inventory 25,000 Additional paid-in capital 40,000 Equipment-net 40.000 Retained Earnings 27,000 P100.000 P100.000 A review of the records of the corporation indicates that the errors and omissions listed in the table below had not been corrected during the applicable years. Inventory Inventory Depreciation Prepaid Unearned Accrued December 31 Overstated Understated Expense Expense Income Expense 2004 P6,000 P250 P900 P200 2005 P7,000 500 700 P400 75 2006 8,000 150 500 100 2007 9,000 350 600 300 50 The net income according to the records is: 2005, P7.500: 2006, P6,500; and 2007, P5,500. No dividends were declared during these years, and no adjustments were made to retained earnings. Ignoring income tax effects, answer the following questions: 1. Adjusted net income (net loss) for 2005: a. P (6,475) b. P 225 C. P (6,225) d. P 775 2. Adjusted net incomel (net loss) for 2006: a. P 6,025 b. P (1,475) c. P5,525 d. P (8,475) 3. Adjusted net income (net loss) for 2007: a. P 22,000 b. P 14,000 c. P6,000 d. P 22,150 4. What is the effect of these errors on the networking capital at the end of 2007? a. P 8,000 understated c. P 16,850 understated b. P 8,900 understated d. P 9,250 understated 5. What is the adjusted balance of the stockholders' equity at December 31, 2007? a. P 95,000 b. P 95,900 c. P 103,850 d. P 96,250 Suggested answers: 1 a 2c 3 a 4d 5 NEED SOLUTIONS TY

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