COMPREHENSIVE PROBLEM

Liabilities

Problem 1

Your audit staff for the audit of Silver Bells Corporation turned over to you his working
papers containing information on the company’s liabilities. You noted the following:
Accounts Payable
 The general ledger balance is Php10,000,000.
 The balance is net of debit balances in a supplier’s account amounting
to Php400,000.
 Unrecorded Vouchers include the following:
a. Mabuhay Company for Php600,000. The merchandise was
shipped December 31, 2016, FOB shipping point. The
goods were received on January 3, 2017.
b. Lively Company for Php240,000. The merchandise was
shipped on December 28, 2016, FOB Destination.
The goods were received on January 4, 2017.
 The company, as consignee, held goods worth Php180,000. These
goods were not included in the physical inventory on December 31,
2016 but were included in the Accounts Payable.

Bonds Payable
 Silver Bells Corporation issued 2,000 of its 5-year Php1,000 face
value 11% bonds on July 1, 2014. These bonds were sold for
Php2,155,800 a price that yields 9%. The bonds were dated January 1,
2014 and pay interest annually every December 31. On July 1, 2016,
1,000 of the bonds were retired , the company paying Php1,100,000
inclusive of accrued interest. This amount was charged by the
company to the Bonds Payable account. On December 31, 2016, the
company charged Interest Expense for the amount of Interest paid. No
entry was made by the company during 2016 for the amortization of
bond premium.

Other Obligations
 In October 2016, an employee was injured on the parking lot in an
accident partially the result of his own negligence. The employee has
sued for Php2,000,000. The legal counsel believes it is probable that
the outcome of the action will be unfavorable and that the settlement
would cost the company from Php40,000 to Php400,000.
 Silver Bells sells goods with a warranty under which customers are
covered for the cost of any manufacturing defects that become
apparent within the first year after the purchase. If minor defects were
detected in all products sold, repair costs of Php4,000,000 would
result. If major defects were detected in all products sold, repair costs
of Php10,000,000 would result. The enterprise’s past experience and
future expectations indicate that 65% of the goods sold have no
defects, 25% of the goods sold have minor defects and 10% of the
goods sold have major defects.
 On September 30 2014, Silver Bells acquired special equipment from
Moms Company by paying Php2,000,000 down and signing a note
with a face value of Php4,000,000 due September 30, 2017. The note
is non-interest bearing. Market rate of interest for similar notes at the
date of its issuance was 10%. (round present value factor to five
decimal places).

1. The adjusted balance of Accounts Payable at December 31, 2016 is

a. Php10,020,000 c. Php11,060,000
b. Php10,820,000 d. Php11,000,000
 Accounts payable, per client P10,000,0
Debit balance in suppliers’ account 00 400,00
Shipments from cruise 0
600,00
Goods held on 0
consignment Accounts (180,000)
payable, per audit P10,820

2. The adjusted ledger balance of Premium on Bonds Payable at December

31, 2016 is
a. Php155,800 c. Php70,642
b. Php101,506 d. Php35,321.

Carrying Value, 1/1/14

Date Nominal Int(11%) Effective Int(9%) Amort CV

1/1/14 2,155,800
12/31/14 220,000 194,022 25,978 2,129,822
12/31/15 220,000 191,684 28,316 2,101,506
Sold bonds (1,050,753)
--------------
12/31/15 1,050,753
12/31//16 110,000 94,568 15,432 1,035,321

Premium on Bonds Payable = 1,035,321 – 1,000,000

= 35,321

3. The amount of gain or (loss) on retirement of bonds payable during 2016

is
a. Php(1,963) c. Php(5,753)
b. Php(56,963) d. Php1,963

Proceeds from retirement of bonds

inclusive of accrued interest Php 1,100,000
Less: Accrued interest
1,000,000 x 11% x 6/12 55,000
------------------------
Proceeds from retirement of bonds
exclusive of accrued interest 1,045,000
Less: Carrying value of bonds
CV, 12/31/15 Php 1,050,753
-----------------------
Amortization
(Jan 1 to July 1)
NI (1,000,000 x 11% x ½) 55,000
EI (1,050,753 x 9% x ½) 47,284
-------------------------
7,716
------------------------- 1,043,037
-----------------------
Gain on retirement of bonds 1,963
=============

4. The carrying amount of Notes Payable that will be shown on December

31, 2016 statement of financial position is
a. Php4,000,000 c. Php3,636,240
b. Php3,727,255 d. Php3,388,408
 P4,000,000 x .75131 = P3,005,240 (PV rate = 3 periods, 10%; .75131)

Date Interest Carrying

9/30/14 P
9/30/15 300,524 3,005,240
3,305,76
9/30/16 330,576 4
3,636,34
9/30/17 363,660 0
4,000,00
0

Carrying value as of 9/30/16 P3,636,340

Amortization 363,660 x 3/12 90,915
Carrying value 12/31/2016 P3,727,255

5. The provision for litigation expenses that should be shown on the

statement of financial position at December 31, 2016 is
a. Php300,000 c. Php340,000
b. Php0 d. Php350,000

6. The provision for warranties that should be shown on the statement of

financial position at December 31, 2016 is
a. Php0 c. Php2,000,000
b. Php4,000,000 d. Php7,500,000

10,000,000 (10%) + 4,000,000 (25%) = P2,000,000

Problem 2

In your initial audit of Pau Corporation, you find the following ledger account balances:

12% Bonds Payable, due March 31, 2019

------------------------------------------------------------
Debit Credit Balance
March 31, 2014 Php 10,000,000 Php10,000,000
October 1, 2016 Php 3,060,000 6,940,000

Premium on Bonds Payable

------------------------------------------
Debit Credit Balance
March 31, 2014 Php 772,144 Php 772,144

Bond Interest Expense

-----------------------------------
Debit Credit Balance
March 31, 2016 Php 600,000 Php 600,000
Sept 30, 2016 600,000 1,200,000

The bonds pay interest semiannually on March 31 and September 30. The bonds were
issued on March 31 at a price to yield 10%.

On October 1, 2016, Php3,000,000 of the bonds were redeemed for permanent

cancellation at 102.

Requirements :

Prepare any necessary audit adjusting entries at the end of 2016.

Yearly 12% 10%
Semi-monthly 6% 5%
Date Nominal Effective Amortization Carrying Value
3/31/2014 10,772,144
9/30/14 600,000 538,607 61,393 10,710,751
3/31/15 600,000 535,538 64,462 10,646,289
9/30/15 600,000 532,314 67,686 10,578,603
3/31/16 600,000 528,930 71,070 10,507,533
9/30/16 600,000 525,377 74,623 10,432,910
Sold 3,000,000/10,000,000 x 10,432,910 ( 3,129,873)
-----------------
9/30/16 after sale 7,303,037
3/31/17 420,000 365,152 54,848 7,248,189
9/30/17 420,000 362,409 57,591 7,190,598

September 2014 to September 2015

600,000 x 3 = 1,800,000
Entry Made
Interest Expense 1,800,000
Cash 1,800,000

Correct Entry
Interest Expense 1,606,459
Bond Premium 193,541
Cash 1,800,000

Interest expense : 538,607+535,538+532,314 = 1,606,459

Amortization : 61,393+64,462+67,686 = 193,541

Adjusting Entry (2016)

Bond Premium 193,541
Interest Expense 193,541

December 31, 2015 (Adjusting Entry)

Entry Made
None

Correct Entry
Interest expense (10,578,603 x 5% x 3/6) 264,465
Bond Premium 35,535
Interest payable (10,000,000 x 6% x 3/6) 300,000

2015 Exp(U) -------NI(O) ---------RE(O)

2016 Exp(O)--------NI (U)

Adjusting Entry(2016)
Retained Earnings 264,465
Bond premium 35,535
Interest Expense 264,465
Interest payable 35,535

December 2016

March 31, 2016

Entry made
Interest expense 600,000
Cash 600,000
 Correct Entry
Interest expense 528,930
Bond premium 35,535
Interest payable 35,535
Cash 600,000

Adjusting Entry

Bond premium 35,535

Interest payable 35,535
Interest expense 71,070

September 30, 2016

Entry Made
Interest Expense 600,000
Cash 600,000

Correct Entry
Interest Expense 525,377
Bond Premium 74,623
Cash 600,000

Adjusting Entry
Bond Premium 74,623
Interest Expense 74,623

October 1, 2016
Entry Made
Bond Payable 3,060,000
Cash 3,060,000

Correct Entry
Bonds Payable 3,000,000
Bond premium
(3,129,873-3,000,000) 129,873
Cash 3,060,000
Gain from bond
Redemption 69,873

Cash Payment from redemption of Bonds 3,060,000

Carrying Value 3,129,873
---------------
Gain from bond redemption 69,873
========
Adjusting Entry
Bond Premium 129,873
Bonds Payable 60,000
Gain from Bond Redemption 69,873

Accrual end of 2016

Interest Expense 182,576
Bond Premium 27,424
Interest Payable 210,000
Problem 3

Your company has been engaged to examine the financial statements of Pau Company
for the years ended December 31, 2017 and December 31, 2016. You have been
assigned to review the liabilities and shareholders equity balances. You have learned
that on January 1, 2015, Pau Company issued a five year, 8% bonds Php5,000,000
bonds for Php5,500,000. Each Php1,000 bond is convertible into 8 shares of Php100
par ordinary share of Pau Company, at the option of the bondholder. Interest on the
bonds is payable annually on December 31. Without the conversion feature, the bonds
would have sold to yield 10% to the holders. (Round present value factors to four
decimal places.)

1. The issue price that was attributable to the debt is

a. Php5,420,000 c. Php5,000,000
b. Php5,399,350 d. Php4,620,820

Total issue price P5,500,000

-----------------
Issue price attributable to the debt
FV:(P5,000,000 x 0.6209 ) P3,104,500
Interest:400,000 x 3.7908 1,516,320
-----------------
4,620,820
-----------------
Issue price attributable to the conversion privilege P 879,180
==========
Cash 5,500,000
Bond discount ( 5,000,000 -4,620,820) 379,180
Bonds payable 5,000,000
Paid in capital from bond conversion privilege 879,180

2. What is the correct carrying value of the bonds on December 31, 2015
a. Php4,682,902 c. Php5,000,000
b. Php4,744,984 d. Php5,467,402

Date Nominal Interest(8%) Effective Interest(10%) Amortization Carrying Value

01/01/2015 4,620,820
12/31/2015 400,000 462,082 62,082 4,682,902
12/31/2016 400,000 468,290 68,290 4,751,192
Conversion/Retirement (2,000,000/5,000,000 x 4,751,192) (1,900,477)
---------------
Balance after conversion 2,850,715
12/31/2017 240,000 285,072 45,072 2,895,787
Conversion (1,000,000/3,000,000 x 2,895,787) ( 965,262)
----------------
Balance after conversion 1,930,525
12/31/2018 160,000 193,052 33,052 1,963,577
12/31/2019 160,000 196,358 36,358 2,000,000
196,423 36,423

3. What is the interest expense on these bonds for the year ending December 31,
2016?
a. Php400,000 c. Php468,290
b. Php437,392 d. Php500,000

4. Php2,000,000 of the bonds were converted into ordinary shares on January 1,

2017. What amount should have been credited to share premium, upon
conversion?
a. Php652,149 c. Php400,000
b. Php520,000 d. Php300,477

Carrying Value of Bonds Converted 1,900,477

 Par Value of Shares Issued
(2,000,000/1,000 x 8 = 16,000) x Php100 1,600,000
---------------
Share Premium 300,477
=========

Bonds payable 2,000,000

Paid in capital from bond conversion
privilege (879,180 x 2/5) 351,672
Bond discount (2,000,000-1,900,477) 99,523
Share capital 1,600,000
Share premium (351,672 + 300,477) 652,149

5. Disregard the information given in No. 4. Assume, instead, that on January

1,2017, Php2,000,000 of the bonds were retired. The bonds without the
conversion feature would have sold @105 on this date. What amount of gain or
(loss) should be recognized on the retirement of the bonds?
a. Php40,000 c. Php(59,523)
b. Php160,000 d. Php(199,523)

Retirement of bonds without conversion privilege

(2,000,000 x 105) Php 2,100,000
Carrying value of bonds converted 1,900,477
-----------------------
Loss on retirement of bonds Php 199,523
=============
Bonds payable 2,000,000
Loss on early retirement of bonds 199,523
Paid in capital from bond conversion
privilege (879,180 x 2/5) 351,672
Bond discount 99,523
Cash 2,100,000
Share premium from unexercised
conversion privilege 351,672

6. Disregard the assumption in item No. 4. Assume that on January 1, 2017,

Php2,000,000 of the bonds were retired. The bonds without the conversion
feature would have sold @ 105 on this date. What should be the interest
expense for the year ended December 31, 2017?
a. Php252,374 c. Php300,000
b. Php285,072 d. Php475,119

7. Php1,000,000 bonds were converted into ordinary shares on January 1, 2018.

What amount of Paid in capital from bond conversion will be canceled?

Carrying value of bonds converted Php 965,262

Value of Share issued
( Php1,000,000/1,000 x 8= 8,000 shares) x P100 800,000
---------------------
Share premium 165,262
+ Value of conversion privilege converted
(879,180 – 351,672) x 1/3 175,836
---------------------
Total Share Premium Php 341,098
============
 Bonds payable 1,000,000
Paid in capital from bond conversion 175,836
Share capital 800,000
Share premium 341,098
Bond discount (1,000,000-965,262) 34,738

8. Refer to No. 7. What is the carrying value of the bonds to be converted on

January 1, 2018? Php965,262

9. What is the interest expense on these bonds for the year ending December 31,
2017? Php 285, 072 (refer to amortization table)

Interest expense 285,072

Cash 240,000
Bond discount 45,072

10. What is the interest expense on these bonds for the year ending December 31,
2018 and 2019? Php193,052 and Php196,423 (refer to amortization table)

2018: Interest expense 193,052

Cash 160,000
Bond discount 33,052

2019: Interest expense 196,423

Cash 160,000
Bond discount 36,423

Bonds payable 2,000,000

Paid in capital from bond conversion
(879,180 – 351, 672 – 175,836) 351,672
Cash 2,000,000
Share premium arising from
unexercised conversion privilege 351,672

Problem 4

Camil Company inaugurated a new sales promotional program. For every 10 cereal
box tops returned to Camil Company, customers will receive an attractive prize. Camil
Company estimates that only 30% of the cereal box tops reaching the customer will be
redeemed.

Units Amount
Sale of cereal boxes 2,000,000 P 24,000,000
Purchase of prizes 36,000 180,000
Prizes distributed to customer 28,000

The accountant of Camil Company journalized the purchase of prizes as a debit to

premium expense and a credit to cash. He just prepared a memo entry for prizes
distributed.

Required:

Prepare any necessary audit adjusting entries.

Premium Expense
(2,000,000 x 30%)/10 x P5 = P300,000

Inventory of Premiums
( 36,000 – 28,000) x P5 = P 40,000
 Estimated Premium Claims Outstanding
Expected distribution
(2,000,0000 x 30%)/10 60,000

Actual distribution (28,000)

----------
Still to be distributed 32,000
Cost of each premium x P5
----------
Premium Claims Outstanding P160,000
========

Audit Adjustment:
Inventory of Premiums 40,000
Premium Expense ( 300,000 – 180,000) 120,000
Estimated Premium Claims Outstanding 160,000

Problem 5

In your initial audit of Mari Company, you find the following ledger account balances:

12% Bond Payable – Due 10 years from 01/01/2014

Debit Credit
01/02/2014-CR P 5,000,000

Bonds Payable Redeemed

Debit Credit
10/01/17-CD P 1,110,000

Discount on Bonds Payable

Debit Credit
01/02/2014-CR P 529,697

Bond Interest Expense

Debit Credit
01/01/2017-CD P 300,000
07/01/2017-CD 300,000

The bonds were redeemed for permanent cancellation on October 1, 2017 at 108 plus
accrued interest. Based on your computation, the bonds were originally issued to yield
14%.

Compute the following:

1. The adjusted balance of bonds payable as of December 31, 2017.
2. The adjusted balance of the bond discount on December 31, 2017.
3. The bond interest expense for the year 2015 to 2017.
4. The loss on bond redemption.
5. The balance of interest payable on December 31, 2017.
6. Adjusting entry as of December 31, 2017.

1. Bonds Payable per client P 5,000,000

Bonds Payable redeemed 1,000,000*
-----------------------
Bonds Payable, per audit P 4,000,000
==============
 *Cash payments = Redemption price + Accrued interest
1,110,000 = 1.08Face + ( Face x 12% x 3/12)
1,110,000 = 1.08Face + (.03Face)
Face = 1,110,000/1.10
Face of bonds redeemed = P1,000,000

2. Carrying value of P4M bonds on December 31, 2017

Face Value, 12/31/2017 (1/01/2018 4,000,000
Less: Carrying value, 12/31/2017 3,682,760
---------------
Bond discount 317,240
========

3.

Date Nominal Effective Amortization of Carrying

interest (6%) interest (7%) Bonds Value
1/12/2014 4,470,303
7/1/2014 300,000 312,921 12,921 4,483,224
1/1/2015 300,000 313,826 13,826 4,497,050
7/01/2015 300,000 314,794 14,794 4,511,844
1/01/2016 300,000 315,829 15,829 4,527,673
7/01/2016 300,000 316,937 16,937 4,544,610
1/01/2017 300,000 318,123 18,123 4,562,733
7/01/2017 300,000 319,391 19,931 4,582,664
Sale 4,582,664x
1,000/5,000 (916,533)
7/012017
after sale 3,666,131
1/01/2018 240,000 256,629 16,629 3,682,760

7/01/17 916,533
10/01/17 30,000 32,079 2,079 918,612

6 months nominal rate = 300,000/5,000,000

= 6%

Yearly nominal rate = 6% x 2

= 12%

Carrying value, 01/2/2014 = 5,000,000 – 529,697

Interest Expense
2015 = 314,794 + 315,829
= 6630,623

2016 = 316,937 + 318,123

= 635,066

2017 = 319,391 + 256,629 + 32,079

= 608,099
4. Total cash received P 1,110,000
Less : Accrued Interest (1,000,000 x 6% x 3/6) 30,000
-------------------
Issue Price of bond redeemed P 1,080,000
Less: CV of bonds redeemed, 10/01/17 918,612
-------------------
Loss on bond redemption P 161,388
============
 Issue Price = P1,000,000 x 1.08
= P1,080,000

5. Balance of Interest Payable on December 31, 2017, refer to table

P4,000,000 x 12% x 6/12 P240,000

6. Redemption of P1,000,000 bond

Entry made
Bonds Payable 1,110,000
Cash 1,110,000

Correct entry
Interest expense 32,079
Interest payable 30,000
Bond discount 2,079

Adjusting entry
Bonds payable 1,000,000
Interest payable 30,000
Loss on bond redemption 161,388
Cash 1,110,000
Bond discount (1,000,000-918,612) 81,388

Accrual of interest for 4,000,000 bonds

Interest expense 256,629
Interest payable 240,000
Bond discount 16,629

Problem 6

In your initial audit of Pau Company, you find the following ledger account balances:

12% Bonds Payable, due March 31, 2020

Debit Credit
March 3, 2015 P 10,000,000
Oct 1, 2017 P 3,060,000

Premium on Bonds Payable

Debit Credit
March 31, 2017 P 600,000
Sept 30, 2017 600,000

The bonds pay interest semiannually on March 31 and September 30. The bonds were
issued on March 31 at a price to yield 10%.

On October 1, 2017, P3,000,000 of the bonds were redeemed for permanent

cancellation at 102.

The company adopts the calendar year as its reporting period.

1. The adjusted ledger balance of Bonds payable account at December, 2017 is

___________. 7,275,613
2. The adjusted ledger balance of Premium on Bonds Payable at December 31,
2017 is _____________. (7,000,000-7,275,613 = 275,613)
3. Interest payable at December 31, 2017 is ____________. 210,000
4. Interest Expense for the year 2017 is _________. (528,930 x3/6) 264,465 +
525,377+182,576 = 972,418
5. The gain (Loss) on bond redemption is _________. 129,873
 Effective Premium Amortized
Date Interest Paid Interest Amortization Cost, End
03/31/2015 10,772,144
09/30/2015 600,000 538,607 61,393 10,710,751
03/31/2016 600,000 535,538 64,462 10,646,289
09/30/2016 600,000 532,314 67,686 10,578,603
03/31/2017 600,000 528,930 71,070 10,507,533
09/30/2017 600,000 525,377 74,623 10,432,910
10/01/2017 10,432,910x 3 /10 (3,129,873)
09/30/2017 After sale 7,303,037
12/31/2017 210,000 182,576 27,424 7,275,613

Proceeds P 3,060,000
Carrying Value of bond redeemed 3,129,873
------------------------
Gain on Bond Redemption 69,873
==============

Problem 7

You are reviewing the Notes Payable and Interest Expense accounts of Mari Fashion
Store as of December 31, 2017. You noted that the company regularly borrows from the
bank in order to finance working capital. The following schedule shows loans with 12%
interest rate, with interest payable at maturity. All loans are repaid on their scheduled
maturity dates, and interest expense is recorded when the loans are repaid, with no
adjustments taken up at year end:

Date of Loan Amount Maturity Date Term of Loan

November 1, 2016 P 1,500,000 October 31, 2017 one year
February 1, 2017 2,500,000 July 31, 2017 six months
May 1, 2017 1,000,000 January 31, 2018 nine months

1. How much did Mari Fashion Store record as interest expense during the year
2017?
1,500,000 x 12% = 180,000
2,500,000 x 12% x 6/12 = 150,000
------------
330,000
=======

2. What is the correct interest expense during the year 2017 as a result of the
above loans?
P1,500,000 x 12% x 10/12 = 150,000
P2,500,000 x 12% x 6/12 = 150,000
P1,000,000 X 12% X 8/12 = 80,000
------------
380,000
=======

3. How much Notes Payable, inclusive of Interest Payable should be shown in the
current liabilities section of the statement of financial position as result of the
foregoing loans?
Principal 1,000,000
Add: Accrued Interest
(1,000,000 x 12 x8/12) 80,000
---------------
1,080,000
========
Problem 8

The Accountant for Mari Company prepared the following schedule of liabilities as of
December 31, 2017:
Accounts payable and accrued expenses P 3,300,000
Notes payable-trade 2,400,000
Notes payable-bank 16,000,000
Wages and salaries payable 700,000
Interest payable ?
10% mortgage note payable 12,000,000
12% mortgage note payable 9,000,000
Bonds payable 20,000,000

The following additional information pertains to these liabilities;

(1) The bank notes payable include two separate notes payable to BBO Bank:
a. A P4,000,000, 8% note issued March 1, 2017, payable on demand.
Interest is payable each six months. Mari Company already made
the first semi-annual interest payments on August 31, 2017.
b. A 2-year, P12,000,000, 11 % note issued January 2, 2016. On December
31, 2017, after paying the accrued interest, Mari Company
negotiated a written agreement with BBO Bank to replace this note with a
2-year, P12,000,000, 10% note. The new note was issued January
2, 2018.
(2) The 10% mortgage note was issued November 1, 2012, with a term of 10 years.
The terms of the note give the holder the right to demand immediate payment if
the company fails to make a quarterly interest payment within 10 days of the date
the payment is due. As of December 31, 2017, Mari Company is two months
behind paying its required interest payment. Penalty for non-payment of interest
charged by the bank was P320,000.
(3) The 12% mortgage note was issued May 1, 2006, with a term of 20 years.
Interest is due annually on April 30.
(4) The bonds payable are 10-year, 8% bonds, issued June 30, 2006. Interest is
payable annually every June 30.

Required: Compute the Interest Payable at December 31, 2017?

Notes Payable – Bank

4,000,000 x 8% x 4/12 (Oct to Dec) P 106,667
Mortgage Notes Payable – 10%
12,000,000 x 10% x 14/12 (Nov 2016 to
Dec 31, 2017) 1,400,000
Mortgage Notes Payable – 12%
9,000,000 x 12% x 8/12 (May to Dec) 720,000
Bonds Payable
20,000,000 x8% x 6/12 (July to Dec) 800,000
------------------
Total P 3,026,667
===========

Problem 9

You obtained the following information and evidence in connection with your
examination of the financial statements of Pau Company for the year ended December
31, 2017:

On October 1, 2017, Pau Company acquired land in Bulacan to be used for agricultural
purposes. It paid P2,000,000 cash and issued a non-interest bearing note payable in
four equal installments of P3,000,000.
Independent appraisals of the land indicted a fair value in the vicinity ranging from
P10,500,000 to P12,500,000.

On October 1, 2017, The BBO Bank of Bulacan offered Pau Company a 4-year
installment loan at 10% interest, assuming the land would be security for the loan. Pau
Company refused the offer of the bank and instead issued the note to the owner of the
land.

You found the following accounts in the ledger of Pau Company:

Land
Debit Credit
07/01/2017-VR P 2,000,000
12/31/2017 JV 12 1,500,000

Accrued Liabilities – Land Purchases

Debit Credit
12/31/2017 – JV 12 P 1,500,000

VR – Voucher register
JV – Journal Voucher

Required

1. Prepare all audit adjustments pertaining to the foregoing.

2. What is the correct cost of land?
3. How much current liabilities relating to the foregoing shall be presented on the
December 31, 2017 statement of financial position?
4. How much non-current liabilities relating to the foregoing shall be presented on
the December 31, 2017 statement of financial position?
5. How much interest expense, if any, shall Pau Company report for the year ended
December 31, 2017 relating to the foregoing?

2. Correct Cost of Land

Down payment P 2,000,000
PV of 4 future payments
P3,000,000 x 3.1698 9,509,400
--------------------
Cost of land P11,509,400
===========

Land 11,509,400
Discount on Notes payable 2,490,600
(12,000,000-9,509,400)
Notes payable 12,000,000
Cash 2,000,000

Date Effective Interest Carrying Value