In conducting your audit of Blue Lagoon Corporation, a company engaged in import and wholesale business, for the fiscal year ended June 30, 2021, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, May 30, 2021 instead of at June 30, 2021. You obtained the following information from the company's general ledger. Sales for eleven months ended May 31, 20121 (before audit adjustments) Sales for the fiscal year ended June 30, 2021 (before audit adjustments) Purchases for eleven months ended May 31, 2021 (before audit adjustments) Purchases for the fiscal year ended June 30, 2021 (before audit adjustments) Inventory, July 1, 2020 Physical inventory, May 30, 2021 P1,615,000 1,843,000 1,296,000 1,536,000 170,200 264,000 Your audit disclosed the following additional information. a. Shipments costing P12,000 were received in May and included in the physical inventory but recorded as June purchases. b. Deposit of P4,000 made with vendor and charged to purchases in April 2021. Product was shipped in July 2021. c. A shipment in June was damaged through the carelessness of the receiving department. This shipment was later sold in June at its cost of P56,000. d. Sale of goods for P75,000 was recorded in the company's books on June 1, 2021. Your further inquiry reveals that the goods were shipped to buyer on May 31, term FOB shipping point. The goods cost P26,000. e. Shipment of goods on May 29, 2021 terms FOB destination with cost of P30,000 was recorded as sales for P60,000 in May. The goods were received by the buyer on June 3, 2021.

Sandra: We are beginning our audit of Imex and have prepared ratio analyses to determine if there have been significant changes in financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5 to 2.8 and the accounts receivable turnover has decreased from 12 to 8. I was wondering if you could explain this change in operations. Travis: There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year. Sandra: What gives you this confidence? Travis: We will increase our advertising and provide some very attractive price concessions to move these machines. We have no choice. Newer technology is already out there, and we have to unload this inventory. Sandra: …and the receivables? Travis: As you may be aware, the company is under tremendous pressure…

Scope Limitations. D. Brady has been engaged as the auditor of Patriot Company andis currently planning the year-end physical inventory counts. Patriot is a retailer that holdssignificant inventories in its warehouses and stores in six regions across the United States.Because of timing and logistics, Brady is able to observe the physical inventory at only oneof Patriot’s warehouses, which accounts for 20 percent of Patriot’s inventories.In Brady’s professional judgment, the fact that inventories held at only one warehousecan be observed does not provide sufficient evidence with respect to Patriot’s inventorybalances at the date of the financial statements. Although physical inventory counts couldbe delayed at the remaining warehouses for Brady to observe the counts, the flow of goodsin and out of the warehouses would result in a discrepancy between the inventory quantitieson hand at year-end and the inventory quantities on hand at the date of the count.Required:a. Assume that Brady…

During the audit of BAC Company's 2029 financial statements, the auditors discovered that the 2029 ending inventory had been understated by $12,000 and that the 2029 beginning inventory was overstated by $9,000. Before the effect of these errors, 2029 pretax income had been computed as $115,000. What should be reported as the correct 2029 pretax income? A) $112,000 B) $94,000 C) $118,000 D) $136,000 E) $103,000