ReSA The Review School of Accountancy ‘BTel. No. 735-9807 & 734-3989 AUOITING PROBLEMS IRENCO/ESPENTLLA SOLUTIONS To QUIZZER 3 - LIABILITIES -PROBLEM 1: PROBE IMC, rem Current Noncurrent Uabinies — Usbiltes 2 Accounts pyaie- ae, 9170,000 + 3,000 200.000, 1. Notes payable - trage, 970,000 70,000 nearest on Notes: §0,000*159%4"4/12 2,300 £26,00015%*2/12 ‘500 & Advance receipts irom customers, 100,000 4. Containers deport ‘30,000, (© Notes payable = BPI , 7200,000/5 0,000 160,000 . Converbble bonds. 1,000,000 1 Notas payabse = officers 40,000 ‘Salaries and wages (68,00018/30) 34.000 ‘m, Output VAT, net tapi (246,000 ~ 164,000) 2,000 1 Accounte racewable, creak balance 12/300 0. Cash in banks (overdraft) 118,000 - (125,000+55,000) 5,000 Estimated warranty costs on goods sod 446,000 5. Installment notes peyeble, P75,000 1/2 25/000 0,000 1 Prowston for losses (25,000 + 75,000) / 2 Deferred tex Hay TOTAL PROBLEM 2: DATING, 4b. 5. 6. PROBLEM: RADQING. 6. Estimated Werrartes Payable, beginning belence: Required Estimated Experse (7-250,000-150,000)"5% Less: Actual cost incurred for the year Fetimated Warranties Payable, ending betence 4: SAN MIG CORP SUABICTY FOR COMP ABSENSES, 2014 'S5 employer with 4 weeks 20 25 omployees witn 2 weeks 0 270 5, multiply by (5 ¢ay operations) 3 ‘TOTAL LIXB FOR CONP. ABSENSES IN DAY'S 1350 Multipiy by: daly rate 9 ‘Required llablity balance, 12/31/2014 Coms7 300) 7.4. LUIABILTY FOR COMP ABSENSES, 2015 '30 employees with 6 weeks (4 weeks limit) 120 25 employess with 5 weeks (4 weeks mit) 100 50 employees with 2 weeks 30 10 employers with 2 weeks 20 230 suttiply by (5 cay operations) 5 TOTAL Lids FOR COMP, ABSENSES IN DAYS, 1.550 Mutiply op: cally rate cometh REQUIRED BALANCE OF THE LIABILITY ae PROBLEM 5: CUMMINGS INC Fst quarter sales 16,200,000 Second querer sales _14850,000_ Total 31,050,000 eh 10% 3,105,000, ‘Third querter soles 12,005,000" Fourth quarter sales ——8.100,000_ Total 20,100,000 Matty by! 15% 3,015,000 ‘TOTAL ESTIMATED RETURNS ‘oral estimated returns utepty by: Cost of sale ratio Freight coe (6,120,000 10%) Laser Salvage value of returnea goods (6,120,000"35%) NET WARRANTIES EXPENSEQUIZZER 3 ~ LIABILITIES - SOLUTIONS ‘Sales for the frst quarter (16,200K" 10%) IRENEO/ESPENTLLA Saas marisa vein ‘Sales for the second quarter (14,850K*10%) 7 Sec incest eae wast Sorat cai cai poorer tes secs soaseny olen : a rca ae Se I name st ‘Satvage value of returns {2,002,500*15%) ESTIMATED WARRANTIES PAYABLE PROBLEM 6: MOUNTAIN PROVINCE HOME DEPOT “ote! sales = home trnure 29,000, Divide by: 000 Total premium cstibutable 18:400 Mutipty by: estimated redemation co Estimated redemption 30 Multoy by, net cost of premiums (380-50) Estimated pramium expence bremuume holy, bop Soa Actual redemption (9,600,000/2900)"250 Estimated prema lépity, em Estmatec warranty ibility, begin Tota siee-htchon appieoncet ato By Estimated warronties expense ‘Actual merranty costs Gurnee veer” Estimated warranty lability, end PROBLEM 7: OCAMPO APPLI/ wae 32. 2,176,000 4,320,000, 2.828, (3g72,.000] 14. v. 19,6 206 24, b Face value of dscount coupons cetrbuted 20,200 ‘ad: Distributors enching fee (P250,000"10%) 25,000 Tots! 7275000 Multiply by estimated exercise rate 75%, Reauires Estimated Exoense 708,250 tose: Actua ct/Reimbursenent to dstrnutors 340,350 Estimated liability for discount coupons, end seine] 1. Lnearned service revenue, begining 300,000 Age: Cash coleccons dung the year 480,000 Less: Service revenue actualy carred dunng the year 430,000) (esses) as. Uneamed ervice revenue, and 0% (N= Tey; Tax Bonus 5 = 65,000 + 0358 B = 65,000/0.965 B= 767,358 17. b. Unadjusted Net Income 38H (Nt B= 10% (7,000,000 ~ 35%(1,000,000 - &) 1,016,250, ‘Overstated Habilty Tor discount coupon (109, 750-66,000) “43,750 Understated unearned service revenue {300,000-360,000) ___(60,000) TEip00.0007 ‘Adjusted Wec Income 7. Accounts Payable, unadjusted 250,000 Receiving report number 2634 (Unrecorded purchase) 12,500 Receiving report number 2636 (Purchase in transit) ‘Accounts Payable, adjusted Warranties labilty, unadjusted Warranty expense, 2014 (10,550,000%6%) Total Less: Actual warranties paid ‘warranties sblity, adjusted (12/2014) te anes. 10,000 533,000, 643,000 Legal services 4,600 Medical services S00 Payroll (52/21/ ~ 2/31) + 14,400 *8/12 ; Royalties 3,300 Acctved interest on Lease Liability aie (3.823,326"2%)see table below ecru inturest on Bond Liat 1249/12) 24,000 ‘Acetued i ‘Bond Liablity (800,000*12%*3/12) ae Total accruals ‘The Review School of Accountancy (No. 735-B807 & 734-3989QUTFZER 3 - LtABILTTIES - SOLUTIONS IRENEO/ESPENTLLA ‘Amortization Table: Lease Libity Payment Heerest (Ba.*29) Pinal batence Ms0i4——as0,000 d/ua01 180,000 80,708 69,292 ' sifzo1e 150,000 79322 7aie7e 395.418 + airs deere 71308 font Sass 20 ines’ ine Naor Bisa Saaiyan egos eo ise EBL 3 Shazes ojos 180,000 7136s lose (SsSgORSE] 24. Ane. ‘Amortization Table: Bonds Payable ‘Nominal Interest Effective Interest Amortization Belance Belance asi706 Sp30/36 42,505 (a1) 945.291 anos 22315 (58s}** 890,505, as ot opao/2014 ‘**As of 12/31/2014: 5,60593/6 = __(2,043] Balance, 42/21/2014 PO4S449 22. Ans. a. PROBLEM 9: DETOX INC, ‘Accounts Paysite, unaclusted 534,000 RR# 1015 (ourchese In trarsit ~ FOB Destination) (@5,000) RRE 1013 (goods received on Decernber 30, 2014) 165,000 RRRa 1018 (porenaze in transit ~ FOB Stupping PIN) 40 ‘Accounts payable, aujusted 23. Ans. 4 Required estimated expense 2013: (50,000/5)*40%*(PL60-P50) ‘Actual cost of redeemed premlutrs 2013: (3,000-1,200)*(P160-P50) timated premiums payable, 12/31/2013. Required extmated expense 2014: (50,000/5)°40%(P160-P30) ‘Actual cost of redeemed premiums 2074: (1,20046,000-2,100)*(P180-PS0) Estimated premiums payable, 12/31/2014 Proceeds from Issuance of bonds on 1/1/2013 P2.050,000 Flr value of bonds at 12% ertective rate* 1, APIC = Bond Conversion Priaiege $108,073, “PV of future cash flows st 12% for 3 periods: ‘rinelpel: 2,000,000 * 0.711780 1,423,560 Interest: 260,000 * 2.40183 460,366 “Total present value = Fair val P503,527 ‘Amortization table: Bonds payable “Correct Interest Nominal Interest Amortization alone an. 1, 2033: 1,303,927 Dec. 31, 2103: 228,471 200,000 20.471 1,932,398 731,888 200,000 31/868 1/964,285 25. ans. 4 Bs,738 200,000 35,714 7,000,000 enery upon conversion on 12/31/14: "OR: Bonds payable 1,000,000 DR: APIC ~ Bond conv. priv. 73,036 Discount on bonds payable 17,857 CR: Ordinary shares (10,000*50) 500,000 CR Share premium SS5)179 26.Ans. A. Present value of the minimum lease payment at Implicit lease rate, 8% for § periods: (500,0003.9927) 2,305,626 Fair market valve of tne leased asset at Inception of lease 2/400,000 “100%, thus Finance lease ‘Amortization table: Lease babilty Pesiodic Interest’ ©—Principal Date payments “Expense © Amount alance Jan. 1, 2014: 2,395,626 dec 31, 2014 600,000 191,650 408,350 [_ 4,987,276 Dee. 31, 2015: 600,000 «158,982 441,018 1,546,258 Present value of MLP on 1/1/14 72,395,526 Divide by: Term (na transter of onnershio) i Deprediation expense in 2014 [ya79,325] 20. ans.c. PROBLEM 10: PIPINO CORP, ‘Amortization table: Nates Payable Date ‘Correct Interest. Nominol Interest Amortization ary2032 3/31/2033, 1,079,250 geojg00 119250 7/316,250 wyaizors 1,097,138 900,000 137138 7,451,308, 122014 38,281* 720,000" 118,281 [__P7,569,669 ] 29. Ans. c. 9 months only up to December 31, 2014 esa ‘The Review School of Accountancy Wel. No. 735-9807 & 734-3989