Pearl Company reported income before tax of P5,000,000 for the current year

which included the following amounts:

Equity in earnings of Cinn Company – 40% interest 1,600,000

Dividend received from Cinn Company 400,000
Adjustment of profit of prior year for arithmetical
error in depreciation ( 500,000)
Gain on sale of equity investment at FVOCI 1,000,000

What amount should be reported as income before tax?

ANSWER:
Net Income 5,000,000

Add: Gain on Sale of Equity Investment 1,000,000

@FVOCI
Adjustment of profit of prior for error in 500,000 1,500,000
Depreciation, net of tax effect
TOTAL 3,500,000
Less: Dividend Received from Cinn 400,000
Company
Income Before Tax 3,100,000

Problem 37

Remy company had the following events and transactions during 2019:

* Depreciation for 2018 was discovered to be understated by P300,000.

* A litigation settlement resulted in a loss of P250,000.
* The inventory on December 31, 2017 was overstated by P200,000
* The entity disposed of a recreational division at a loss of P600,000
* The income tax rate is 30%

1. What is the effect of these events on the income from continuing operation for 2019?

2. What is the effect of these events on net income for 2019?