You are auditing Arthur Ltd. Company for the year ending 31 December 2020. The company is exempt from corporate income tax. Following are misstatements discovered during the audit: a) Sales and accounts receivable were overstated by $50,000 because of cutoff errors. b) The loan confirmation from the bank revealed that interest payable for December was $5,200, but the company did not record this accrued expense. c) The company's inventories did not include $20,000 of merchandise purchased on account, FOB shipping point, which was in transit at the balance sheet date. d) A clerical error resulted in the December accrued rent of $5,000 was mistakenly recorded as a long-term rather than a current liability. e) The company did not record a $60,000-car as a contributed capital asset on May 1, 2020. The car is estimated to have a 10-year life with no salvage value. Required: 1. Explain the effects of the misstatements on the financial statements (including total assets, liabilities, owners' equity, and net income). 2. Suppose the client agrees to correct all of the above misstatements. What are adjusting entries?