Dallas Corp Liabilities

STRAIGHT PROBLEMS
Straight Problem 1
Classification of Liabilities
Dallas Corporation is selling audio and video appliances. The company’s fiscal year ends on March 31. The
following information relates to the obligations of the company as of March 31, 2020:
Notes Payable
Dallas has signed several notes with financial institutions (from borrowings). The maturities of these notes are given
below. The total unpaid interest for all of these notes amounts to P 340,000 on March 31, 2020.
Due Date Amount From 3/31/2020

April 30, 2020 700,000 One month - CL
July 31, 2020 900,000 4 months - CL
February 1, 2021 800,000 10 months - CL
April 30, 2021 1,200,000 13 months -NCL
June 30, 2021 1,500,000 15 months - NCL
Total 5,100,000
John John:
Estimated liabilities belong to provisions.
Estimated Warranties (Warranty Payable or Warranty Liabilities)
Dallas has a one-year product warranty on some selected items. The estimated warranty liability on sales made
during the 2018 – 2019 (Prior FY) fiscal year and still outstanding as of March 31, 2019, amounted to P 252,000. The
warranty costs on sales made from April 1, 2019 to March 31, 2020 (current FY), are estimated at P 630,000. The
actual warranty costs incurred during 2019 – 2020 fiscal year are as follows:
Warranty claims honored on 2018 – 2019 sales 252,000

Total 537,000
John John:
Nature of transactions - purchase of goods and services on credit.
Trade Payables
Accounts payable for supplies, goods, and services purchases on open account amount to P 560,000 as of March
31, 2020.
Dividends (Dividends Payable but careful, there are classifications of dividends)

On March 10, 2020, Dallas’ board of directors declared a cash dividend of P 0.30 per ordinary share and a 10%
ordinary share dividend. Both dividends were to be distributed on April 5, 2020 to ordinary shareholders on record at
the close of business on March 31, 2020. As of March 31, 2020, Dallas has 5 million, P2 par value, ordinary shares
issued and outstanding.
Bonds Payable
Dallas issued P 5,000,000, 12% bonds, on October 1, 2014 at 96. The bonds will mature on October 1, 2024.
Interest is paid semi-annually on October 1 and April 1. Dallas uses the straight line method to amortize bond
discount.
QUESTIONS:
Based on the foregoing information, determine the adjusted balances of the following as of March 31, 2020:
. Estimated warranty payable

A. P 252,000
B. P 345,000
C. P 630,000
D. P 882,000
Joh
SOLUTION: Wa
Warranty liability, March 31, 2019 252,000 beginning balance
Warranty expense, April 1, 2019 to Mach 31, 2020 630,000 for the current year
Total outstanding warranty payable 882,000 Jo
Actual expenditures from April 1, 2019 to March 31, 2020: Wa
From 2018 - 2019 sales -252,000
From 2019 – 2020 sales -285,000
Joh
Warranty liability, March 31, 2020 345,000 Wa
Warranty Payable
Warranty liability, March 31, 2019, beginning 252,000
Warranty expense, April 1, 2019 to Mach 31, 2020 630,000
Total outstanding warranty payable 882,000
Actual expenditures from April 1, 2019 to March 31, 2020:
From 2018 - 2019 sales -252,000 252,000
From 2019 – 2020 sales -285,000 285,000
Warranty liability, March 31, 2020 345,000 537,000
. Total current liabilities (Trade and Other Payables, Provisions and LTL current portion)
A. P 6,445,000
B. P 5,105,000
C. P 5,445,000
D. P 3,945,000
SOLUTION:
Notes Payable:
April 31, 2020 700,000
July 31, 2020 900,000
February 1, 2021 800,000 2,400,000 Borrowings
Interest payable on notes 340,000 Non-trade or other payable
Warranty payable (See number 1) 345,000 Provision
Trade / Accounts payables 560,000 Trade Payable
Cash Dividend Payable (P 5,000,000 x .30 per share 1,500,000 Non-trade or other payable
Interest on bonds payable (P 5,000,000 x 12% x 6/12) 300,000 Non-trade or other payable
Total current liabilities 5,445,000
. Trade and Other Payables (Other Payables means Non-trade Payables)

A. P 5,445,000
B. P 5,100,000
C. P 3,045,000
D. P 2,700,000
SOLUTION:
Trade and
Notes Payable: Other Pay. Provisions
April 31, 2020 700,000
July 31, 2020 900,000
February 1, 2021 800,000
Interest payable on notes 340,000 340,000
Warranty payable (See number 1) 345,000 345,000
Trade / Accounts payables 560,000 560,000
Cash Dividend Payable (P 5,000,000 x .30 per share 1,500,000 1,500,000
Interest on bonds payable (P 5,000,000 x 12% x 6/12) 300,000 300,000
Total 2,700,000 345,000
. Total noncurrent liabilities

John John:
A. P 7,700,000 Issued on October 1 2014
B. P 7,500,000 Maturity date is October 1, 2024
C. P 7,590,000 Term is 10 years or 120 months (10 y
D. P 7,610,000
From October 1, 2014 to March 31, 2
This is equivalent to 66 months (5 ye
SOLUTION:
Notes Payable – due April 30, 2021 1,200,000 Unamortized months is 54 months (1
Notes Payable – due June 30, 2021 1,500,000 2,700,000 This is the basis of balance of Discoun
Bonds Payable 5,000,000 Discount on BP = P 5,000,000 x 4% (

Less: Discount on Bonds Payable Balance of Discount on BP, 3/31/2020
(P 5M x 4% x 54/120) 90,000 4,910,000
Total non-current liabilities 7,610,000
. In auditing accounts payable, an auditor’s procedures most likely will focus primarily on management’s assertion
of
A. Existence
B. Presentation and disclosure
C. Completeness
D. Valuation
. Which of the following procedures is least likely to be performed before the balance sheet date?
A. Observation of inventory
B. Testing of internal control over cash
C. Search for unrecorded liabilities
D. Confirmation of receivables
. Unrecorded liabilities are most likely to be found during the review of which of the following documents?
A. Unpaid bills
B. Bills of lading
C. Shipping records
D. Unmatched sales invoices
. An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is
to obtain evidence concerning management’s assertions about
A. Existence or occurrence
C. Valuation or allocation
D. Completeness
John John:
ACCOUNTING PERIOD (fy):
April 1, 2017 - March 31, 2018
April 1, 2018 - March 31, 2019
March 31. The April 1, 2019 - March 31, 2020 (Current year -under audit)
John John:
of these notes are given INTEREST PAYABLE, P 340,000
2020. This is CL but NON-TRADE LIABILITY.
John John:
To classiffy as CL, it is payable from March 31,
2020 (cut-off date) to March 31, 2021. Twelve
months from SFP date of 3/31/2020.
John John:
Upon sale, accrue the warranty expense by estimate based on sales
during the accounting period (accrual basis; matching principle):
belong to provisions.
Warranty Expense xxx
bility on sales made
Warranty Payable xxx
unted to P 252,000. The (Sales x % = Warranty expense/liab.)
d at P 630,000. The
Upon availment of warranty, the entry is:
Cash/ Supplies xxx
John John:
TWO TYPES OF DIVIDEND WERE DECLARED:
1) Cash Divided
Retained Earnings 1,500,000
560,000 as of March Cash Dividend Payable 1,500,000
(0.30 x P 5,000,000)
2) Share Dividend
Retained Earnings 500,000
share and a 10%
Share Dividend Payable 500,000
areholders on record at (P 5,000,000 x 10%)
value, ordinary shares
NOTES:
Share Dividend Payable is the same as Share Dividend Distributable. This
is reported as shareholders' equity and not as liability.
October 1, 2024.
o amortize bond
John John:
Bonds Payable will mature in 2024 - Noncurrent liability
rch 31, 2020: ACCRUAL OF INTEREST AT 3/31/2020:

Interest Payable on bond at 3/31/2020 is a current liability:
Interest Expense 300,000
Interest Payable 300,000
(P 5,000,000 x 12% x 6/12)
(From Oct 1, 2019 to March 31, 2020)
Interest Payable on bond at 3/31/2020 is a current liability:
(P 5,000,000 x 12% x 6/12)
(From Oct 1, 2019 to March 31, 2020)
John John:
Warranty Expense 630,000
Warranty Payable 630,000
eginning balance
or the current year
John John:
Cash 252,000
John John:
Cash 285,000
Warranty Payable
252,000
630,000
882,000
345,000
Non-trade or other payable
rade Payable
Borrowings
- Current
700,000
900,000
800,000
2,400,000
hn:
n October 1 2014
date is October 1, 2024
10 years or 120 months (10 years x 12 months/year)
tober 1, 2014 to March 31, 2020 - amortized

quivalent to 66 months (5 years and 6 months)
zed months is 54 months (120 months - 66 months)

e basis of balance of Discount on Bonds Payable.
on BP = P 5,000,000 x 4% (100% - 96%) = P 200,000

of Discount on BP, 3/31/2020 = P 200,000 x 54/120 = P 90,000
management’s assertion
g documents?
sheet date most likely is

STRAIGHT PROBLEMS
Straight Problem 2
Beloved Company reported the following information on December 31, 2020:
Accounts Payable 1,000,000

Advances to Employees 45,000
Bank Overdraft 10,000
Bonds Payable 5,000,000
Cash Dividend Payable 100,000
Cash Surrender Value of Life Insurance 75,000
Deferred Tax Liability 15,000
Discount on Bonds Payable 500,000
Income Tax Payable 250,000
Loan of Jordan guaranteed by Beloved Company 500,000
Loan Payable 2,500,000
Patent 50,000
Shares Dividends Payable 150,000
Unearned Rent Income 300,000
Additional information:
A. The loan payable is payable semi-annually for P 500,000 starting June 30, 2021
B. The loan of Jordan guaranteed by Beloved Company has the possibility that Jordan will be held liable
for the guarantee.
C. The bank overdraft is part of the cash management of Beloved Company.
Required:
Compute the following:
. Total current liabilities as of December 31, 2020
. Total noncurrent liabilities as of December 31, 2020
. Total liabilities as of December 31, 2020
SOLUTION:
LIABILITIES
Given Current Noncurrent Total
Accounts Payable 1,000,000 1,000,000
Bonds Payable 5,000,000 5,000,000
Cash Dividend Payable 100,000 100,000
Deferred Tax Liability 15,000 15,000
Discount on Bonds Payable 500,000 -500,000
Income Tax Payable 250,000 250,000
Loan Payable 2,500,000 1,000,000 1,500,000
Patent 50,000
Unearned Rent Income 300,000 300,000
Total Liabilities, 12/31/2020 2,650,000 6,015,000 8,665,000
NO. 1 NO. 2 NO. 3
Note 1:
The bank overdraft, which is part of cash management, is offset to any bank balance with positive balance
as provided under PAS 7.
e held liable
REMARKS
Receivable
Part of the cash management of Beloved Company. See Note 1 below
If the problem is silent, noncurrent liability
Non-trade payable (other payable)
Noncurrent asset - Investment
Contra liability to Bonds Payable
Requires disclosure; not yet a liability

Payable semi-annually for P 500,000 starting June 30, 2021
Intangible Asset
Shareholders' Equity; Share Dividend Distributable
Non-trade payable (other Payable); Pre-collected Income
tive balance
STRAIGHT PROBLEMS
Straight Problem 3
Reclassification Entries for Accounts Payable
In conjunction with your December 31, 2020 annual audit of the financial statements of Sulayman Machine Works,
you have obtained and examined the December 31, 2020, accounts payable trial balance. Your examination of this
trial balance disclosed the following open vouchers:
. Voucher 761, containing a P 380,000 credit to Accounts Payable. This voucher covered a cash transfer to the
factory payroll bank account for the pay period ended December 28, 2020. The payroll cash transfer was made
January 3, 2021, and payroll checks covering this pay period were distributed to factory employees on January 4,
2021.
.
Voucher 778, containing a P 180,000 credit to Accounts Payable. The P 180,000 credit covered the principal and
interest due on a ten year installment loan. The loan was granted to Sulayman Machine Works on January 1,
2020. Terms of the loan agreement call for ten equal annual installment payments of P 100,000, each plus
interest at 8%. Principal and interest payments are due January 5, 2021 to 2030. The voucher indicated that the
Loan Payable and Interest Expense accounts had been properly charged (DEBIT).
. Voucher 741, containing a credit to Accounts Payable of P 50,000. This voucher covered an invoice from
Sikatuna Business Equipment Company for a new computer machine. The computer machine was installed
December 10, 2020, and the Office Equipment account was properly charged.
. Voucher 775, containing a credit to Accounts Payable in the amount of P 65,840. This voucher covered income
taxes withheld from employees during December 2020.
. Voucher 779, containing a credit to Accounts Payable of P 41,460. This credit covered the total interest and
principal due on a 180-day P 40,000 note payable to the Acme Company. Charges to the Note Payable and
Interest Expense had been properly handled.
.
Voucher 751, containing a P 200,000 charge to Accounts Payable. This voucher represented a P 200,000
advance payment to Pandayan Heavy Machine Tool Company for a special order of ten gearboxes. These
gearboxes were to be used to produce ten custom machines ordered from Sulayman by Urduja Company, early
in December 2020. The P 200,000 Sulayman check was mailed to Pandayan Heavy Machine Tool Company on
January 2, 2021.
Instructions:
Prepare any necessary reclassification entries for items 1 to 6.
SOLUTION:
GIVEN INFORMATION
2021.
.
December 10, 2020, and the Office Equipment account was properly charged (DEBIT).
principal due on a 180-day P 40,000 note payable to the Acme Company. Charges (DEBIT) to the Note Payable
and Interest Expense had been properly handled.
.
Voucher 751, containing a P 200,000 charge (DEBIT) to Accounts Payable. This voucher represented a P
200,000 advance payment to Pandayan Heavy Machine Tool Company for a special order of ten gearboxes.
These gearboxes were to be used to produce ten custom machines ordered from Sulayman by Urduja Company,
early in December 2020. The P 200,000 Sulayman check was mailed to Pandayan Heavy Machine Tool
Company on January 2, 2021. (Undelivered Check)
man Machine Works,
ur examination of this Accounts Payable
Debit Credit
a cash transfer to the Item 5 Voucher 751 200,000 380,000 Item 1 Voucher 761
ash transfer was made 180,000 Item 2 Voucher 778
mployees on January 4, 50,000 Item 3 Voucher 741
65,840 Item 4 Voucher 775
41,460 Item 5 Voucher 779
overed the principal and
Works on January 1, AJE 1 380,000 200,000 AJE
00,000, each plus AJE 2 180,000
ucher indicated that the AJE 3 65,480
AJE 4 41,460
an invoice from
chine was installed
ucher covered income NOTES:

Accounts Payable account is a trade payable.
The sources of credit entries generally come from purchases or acquisitions
e total interest and of goods and servcies on credit.
Note Payable and
ENTRY MADE BY CLIENT::
Upon preparation of vouchers, the journal entry made is:
nted a P 200,000
gearboxes. These Purchases xxx
Urduja Company, early Expenses xxx
hine Tool Company on Appropriate account xxx
Accounts Payable xxx
Upon payment on due date, the journal entry made is:

Accounts Payable xxx
Cash xxx
Date Account Names Debit Credit

2020 (AJE NO. 1)
a cash transfer to the Dec. 31 Accounts Payable 380,000
ash transfer was made Salaries Payable 380,000
mployees on January 4, Item No. 1
(AJE NO. 2)
31 Accounts Payable 180,000
Works on January 1, Loan Payable 100,000
00,000, each plus Interest Payable (P 100,000 x 10 x 8%) 80,000
ucher indicated that the
Item No. 2
an invoice from
chine was installed
(AJE NO. 3)
ucher covered income 31 Accounts Payable 65,480
Withholding Taxes Payable 65,480
Item No. 4
(AJE NO. 4)
e total interest and 31 Accounts Payable 41,460
BIT) to the Note Payable Notes Payable 40,000
Interest Payable (P 41,460 - P 40,000) 1,460
Item No. 5
(AJE NO. 5)
31 Cash 200,000
r represented a P
er of ten gearboxes. Accounts Payable 200,000
man by Urduja Company, Item No. 6
y Machine Tool
Notes:
Item No. 3 is properly classified as Accounts Payable. The transaction was about
acquisition on credit of office equipment (computer machine).
STRAIGHT PROBLEMS
Straight Problem 4
Warranties and Premium
Dolores Music Emporium carries a wide variety of music promotion techniques – warranties and premiums – to attract
customers.
Musical instruments and sound equipment are sold in a one year warranty replacement of parts and labor. The
estimated warranty costs, based on past experience, is 2% of sales.
The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on
recorded music and sheet music. Customers may exchange 200 coupons and P 20 for an AM/FM radio. Dolores pays
P 34 for each radio and estimates that 60% of the coupon given to customers will be redeemed.
Dolores’s total sales of 2020 were P 57,600,000 – P 43,200,000 from musical instruments and sound reproduction
equipment and P 14,400,000 from recorded music and sheet music. Replacement labor and parts for warranty work
totaled P 1,312,000 during 2020. A total of 52,000 AM/FM radio used in the program were purchased during the year
and there were 9,600,000 coupons redeemed in 2020.
The accrual method is used by Dolores to account for warranty and premium costs for financial reporting purposes.
The balance in the accounts related to warranties and premiums on January 1, 2020 were as shown below:
Inventory of Premium AM/FM Radio 319,600

Estimated Premium Claims Outstanding 358,400
Estimated Liability for Warranties 1,088,000
Required:
Based on the above and the result of your audit, determine the amounts that will be shown on the 2020 financial
statements for the following:
. Warranty Expense
. Estimated liability for warranties
. Premium Expense
. Inventory of AM/FM radio (Premium)
. Estimated liability for premiums
SOLUTION:
. Warranty Expense
Actual sales in 2020 of musical instruments and sound equipment 43,200,000

Estimated warranty claim rate in 2020 2%
Warranty Expense in 2020 (as accrued) 864,000

Warranty Liability in 2020 (as accrued) - Provision 864,000
Warranty Liability, January 1, 2020, beginning balance (given) 1,088,000 given
Actual warranty costs incurred in 2020 -1,312,000
Estimated liability for warranties, 12/31/2020 640,000
. Premium Expense
Cost per unit of premium – AM/FM Radio, unadjusted 34

Cash remittance by customers upon redemption -20
Cost per unit of premium – AM/FM Radio, adjusted (Expense per unit) 14
Multiply by no. of AM/FM Radio expected to be redeemed of 2020
(14,400,000 x 60%) / 200 43,200 units
Premium Expense in 2020 604,800
. Inventory of AM/FM radio
Inventory of AM/FM radio, January 1, 2020 319,600 given

Purchases in 2020 (52,000 x P 34) 1,768,000
Redeemed in 2020 (9,600,000 coupons / 200 = 48,000 x P 34 unit cost) -1,632,000
Inventory of AM/FM radio, December 31, 2020 455,600
. Estimated liability for premiums John Jo

One cou
P 14,400
Estimated Liability for Premiums, January 1, 2020 358,400 given
Estimated premiums to be redeemed in 2020 - Provision
[14,400,000 coupons / 200 = 72,000 x 60% x (P 34 – P 20)] 604,800 Number 3
Actual redemptions in 2020(9,600,000 / 200 = 48,000 x P 14) -672,000
Estimated Liability for Premiums, December 31, 2020 291,200
John John:
Warranty Expense xxx
d premiums – to attract John John:

Cash remittance by customers:
Cash 20
Premium Expense 20
s and labor. The
Purchase of premium:
Premium 34
Cash 34
h peso spent on
FM radio. Dolores pays Upon premium distribution:
d. Premium Expense 34
Premium 34
sound reproduction
arts for warranty work In effect, premium expense per radio is
P 14 (P 34 cost - P 20 remittance).
chased during the year
John John:
Accrual of warranty expense:
reporting purposes. Warranty expense 864,000
s shown below: Warranty Payable 864,000
(P 43,200,000 x 2%)
Actual warranty cost:

Warranty Payable 1,312,000
Cash/Supplies 1,312,000
Estimated redemption of coupons (accrual of premium exp.):

he 2020 financial Premium Expense 604,800
Premum Payable 604,800
(14,400,000 cp / 200 x 60% = 43,200 radios)
[43,200 radios x (P 34 - P 20)] = P 604,800
Upon redemptions (Actual redemptions):

(9,600,000 cp / 200 = 48,000 radios x P 14 = P 672,000)
Warranty Payable
Debit Credit
John John:
Warranty Expense 864,000
864,000
1,088,000
1,312,000
John John:
Cash 1,312,000
1,312,000 1,952,000 John John:
640,000 Cash 1,312,000
John John:
Premium Expense 34
Premium 34
John John:
Cash 20
Premium Expense 20
John John:
One coupon for each peso spent
P 14,400,000/ 1 coupon each = 14,400,000 coupons issued
STRAIGHT PROBLEMS
Straight Problem 5
Test for Proper Cut-Off
In conjunction with your firm's examination of the financial statements of Carmina, Inc. as of December 31, 2020, you
obtained from the voucher register the information shown in the work paper below:
No. Entry Date Voucher Ref. Description Amount Account Charged

. 12.18.2020 12-200
Supplies, purchased FOB destination,
12.15.2020; received 12.17.2020 15,000 Supplies on Hand
. 12.18.2020 12-203 Auto insurance, 12.15.2020 to

12.15.2021 24,000 Prepaid Insurance
. 12.21.2020 12-210 Repair services; received 12.20.2020 19,000 Repairs & Maintenance
. 12.21.2020 12-212 Merchandise shipped FOB shipping

point, 12.20.2020; received,
12.24.2020 12,300 Inventory
. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12

working days) 69,000 Salaries and Wages
. 12.26.2020 12-226 Subscription to Tax Journals for 2021 5,000 Subscription Expense
. 12.28.2020 12-234 Utilities for December 2020 24,000 Utilities Expense
. 12.28.2020 12-241 Merchandise shipped FOB

destination; 12.24.2020; received,
01.02.2021 111,500 Inventory

point; 12.26.2020; received,
01.03.2021 84,000 Inventory
. 01.02.2021 01-001 Legal services, received 12.28.2020 46,000 Legal Expense
. 01.02.2021 01-002 Medical services for employees for

December 2020 25,000 Medical Expenses

01.04.2021 55,000 Inventory
. 01.05.2021 01-004 Payroll, 12.21.2020 to 01.05.2021 (12

(accrued - 12.31.2020) working days in total. 4 working days
in January) 72,000 Salaries and Wages
01.06.2021 64,000 Inventory
. 01.10.2021 01-007 Manufacturing royalties, December

(accrued - 12.31.2020) 2020 39,000 Manufacturing Costs

destination, 01.03.2021; received,
01.10.2021 38,000 Inventory
. 01.10.2021 01-009 Maintenance services; received,

01.09.2021 9,000 Repairs & Maintenance
. 01.14.2021 01-010 Interest on bank loan, 10.10.2020 to

(accrued - 12.31.2020) 01.10.2021 30,000 Interest Expense
. 01.15.2021 01-011 Manufacturing Equipment installed,

12.29.2020 254,000 Machinery & Equipment
. 01.15.2021 01-012 Dividends declared, 12.15.2020 160,000 Dividends Payable

(accrued - 12.31.2020)
Accrued liabilities of December 31, 2020 were as follows:
Accrued Payroll 48,000 Related to item 13

Accrued Interest Payable 26,667 Related to Item 18
Dividends Payable 160,000 Related to Item 20
Accrued Royalties Payable 39,000 Related to item 15
The Accrued Payroll, Accrued Interest Payable, and Accrued Royalties Payable accounts were reversed effective
January 1, 2021.
Instructions:
Review the data given above and prepare adjusting journal entries to correct the accounts on December 31, 2020.
Assume that the company follows FOB terms for recording inventory purchases.
SOLUTION:
Item No. Account Names Debit Credit
01 Properly recorded
02 Insurance Expense (P 24,000 / 12 months 1/2) 1,000

Prepaid Insurance 1,000
06 Prepaid Subscription 5,000

Subscription Expense 5,000
08 Vouchers Payable 115,000

Inventory 115,000
10 Legal Expenses 46,000

Vouchers Payable 46,000
11 Medical Expenses 25,000

12 Inventory 55,000
(Accrued in 2020 - Accrued Payroll, P 48,000)
(P 72,000 / 12 days x 8 days for year 2020 = P 48,000)
(Accrued in 2020 - Accrued Royalties Payable, P 39,000)
18 Properly recorded 27,667

(Accrued in 2020 - Accrued Interest Payable, P 26,667) 27,667
October 10 to 31 = 22 days
November = 30 days
December = 31
Total days in year 2020 = 22 + 30 + 31 = 83 days
Interest expense in 2020 = P 30,000 x 83/90 = P 27,667
19 Machinery and Equipment 254,000

(Accrued in 2020 - Dividends Payable, P 160,000)
SUPPORTING ANALYSIS:
. 12.18.2020 12-200
Analysis:
The title passed to the entity on 12/17/2020.
Properly recorded:
Supplies on Hand 15,000
Vouchers Payable 15000

Analysis:
Properly recorded:
Requires year-end adjustment:

Insurance Expense 1,000
(P 24,000/12 x 1/2)
Analysis:
Properly recorded:
Repairs and Maintenance 19,000

12.24.2020 12,300 Inventory
Analysis:
Properly recorded:
Inventory 12,300
. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12

Analysis:
Properly recorded: 69,000
Salaries and Wages 69,000
Vouchers Payable
Analysis:
Entry made in 2020:
Entry the should have been made in 2020:

Prepaid Subscription 5,000
Required adjusting entry

Analysis:
Properly recorded
Utilities Expense 24,000

01.02.2021 111,500 Inventory
Analysis:
Entry made in 2020
Inventory 115,000
Entry that should have been made in 2020:

No Entry

Inventory 115,000

01.03.2021 84,000 Inventory
Analysis:
Properly recorded
Inventory 84,000

Analysis:
Entry made in 2020:
No entry

Legal Expenses 46,000
Required adjusting entry:


Analysis:
Entry made in 2020:
No entry

Medical Expenses 25,000


01.04.2021 55,000 Inventory
Analysis:
Entry made in 2020:
No entry

Inventory 55,000

Inventory 55,000
. 01.05.2021 01-004 Payroll, 12.21.2020 to 01.05.2021 (12

working days in total. 4 working days
Analysis:
Already accrued in 2020.
P 72,000 / 12 days x 8 days in year 2020 = P 48,000
Accrued Payroll 48,000

01.06.2021 64,000 Inventory
Analysis:
No title passed to the entity in year 2020.
Properly not recorded in year 2020.
Recorded only on 01/06/2020

2020 39,000 Manufacturing Costs
Analysis:
Entry made in 2020
Manufacturing Costs 39,000
Accrued Royalties Payable 39,000
Entry that should have been made in 2020

Required adjusting entry in 2020

None

01.10.2021 38,000 Inventory
Analysis:

Analysis:
No expense transaction in year 2020

01.10.2021 30,000 Interest Expense
Analysis:
Entry made in 2020
Accrued Interest Payable 26,667
(P 30,000 x 83/90)


None

Analysis:
Entry made in 2020
No Entry

Machinery & Equipment 254,000

Analysis:
Entry made in 2020
Dividends/Retained Earnings 160,000
Dividends Payable 160,000


None
John John:
Apprpriate account xxx
Vouchers Payable xxx
ecember 31, 2020, you
Account Charged Item No. Account Names Debit

Supplies on Hand
02 Insurance Expense (P 24,000 / 12 months x 1/2 month) 1,000

Prepaid Insurance Prepaid Insurance
Repairs & Maintenance 03 Properly recorded
Salaries and Wages 05 Properly recorded
Subscription Expense 06 Prepaid Subscription 5,000

Subscription Expense
Utilities Expense 07 Properly recorded

Inventory
egal Expense 10 Legal Expenses 46,000

Vouchers Payable

Medical Expenses Vouchers Payable
12 Inventory 55,000
Vouchers Payable
Salaries and Wages (P 72,000 / 12 days x 8 days for year 2020 = P 48,000)
Manufacturing Costs (Accrued in 2020 - Accrued Royalties Payable, P 39,000)
Repairs & Maintenance
nterest Expense (Accrued in 2020 - Accrued Interest Payable, P 26,667)
November = 30 days
December = 31

Machinery & Equipment Vouchers Payable
Dividends Payable 20 Properly recorded

e reversed effective
December 31, 2020.

Account Charged
Supplies on Hand
Prepaid Insurance
Salaries and Wages

Utilities Expense
egal Expense
Medical Expenses
Salaries and Wages

Manufacturing Costs
nterest Expense
Machinery & Equipment
Dividends Payable
Credit
1,000
5,000
115,000
46,000
25,000
55,000
254,000
STRAIGHT PROBLEMS
Straight Problem 6
Unrecorded Liabilities
Prepare any necessary audit adjustments for the following audit findings of unrecorded transactions for the year
ended December 31, 2020:
A.
An invoice for an insurance premium in the amount of P 180,000 dated December 31, 2020. Effective date of
policy December 1, 2020 to November 30, 2023. Invoice unpaid at December 31, 2020 due to the invoice being
misplaced by the client. Premium was paid on January 10, 2021 and check cleared bank on January 12, 2020.

2020
Dec. 31
B. An invoice for 10,000 computer payroll checks in the amount of P 100,000 dated December 15, 2020. Checks
had been received, but audit inspection confirms that none had been used by December 31, 2020. Invoice paid
January 22, 2021.

2020
Dec. 31
C. An invoice for a 3-year service contract on the client's desktop and laptop computers in the amount of P 180,000,
dated December 1, 2020. Effective date of service contract, November 1, 2020 to October 31, 2023. The office
manager overlooked approving this invoice until the date of payment - January 10, 2021.

2020
Dec. 31
D. The audit of the client's SSS premiums for December 2020, revealed that the employer's share in the amount of
P 10,000 had not been recorded at December 31, 2020.

2020
Dec. 31
E. The returns of your accounts payable verification letter from Maldita, Inc. indicated a balance due of P 12,000.
Comparison with the client's subsidiary ledger showed a balance of P 18,000. The difference was due to a client
error in debiting Maldito, Inc. for the P 6,000 paid to Maldita, Inc.

2020
Dec. 31
F. A review of the client's profit sharing plan revealed:

. No contributions if profits are P 25,000,000 or less.
. When profits are in excess of P 25,000,000, contribution is to be 10% of such excess, but not to exceed
20% of participant's annual salary.
. Profits are P 90,000,000 and participants salaries are P 120,000,000

2020
Dec. 31
G. A non-interest bearing note to the president, in the amount of P 2,400,000, has been included in Accounts
Payable - Nontrade. After a discussion of this situation with the board of directors on January 10, 2021, it was
recorded in the minutes of that meeting, approval of the loan, but to be at an interest rate of 9%. The note was
dated November 1, 2020, and due on demand.

2020
Dec. 31
H. The review of the sales bonus plan of your client revealed that no entry had been made for bonuses due at
December 31, 2020. The provision of the plan stipulated the following:
No bonus on first P 25,000,000 sales

10% bonus on next P 50,000,000 sales
5% bonus on the next P 100,000,000 sales
2% on any sales in excess of P 175,000,000 sales
The total audited net sales, P 250,000,000 (disregard payroll taxes)

2020
Dec. 31
SOLUTION:
A.

2020
Dec. 31 Insurance Expense (P 180,000 x 1/36) 5,000
Insurance Payable 5,000
Notes:
Effectivity date is December 1, 2020 but still unpaid until January 10, 2021
December 1, 2020 to November 30, 2023 is 3 years or 36 months
Expired portion is from December 1, 2020 to December 31, 2020 or one month
January 22, 2021.

2020
Dec. 31 Unused Office Supplies 100,000
Office Supplies Payable/Accounts Payable 100,000
Notes:
Acquired are blank computer payroll checks which are OFFICE SUPPLIES.
These are already received but unused at end of 2020 (all remain as asset).
AT December 31, 2020, these supplies are not yet paid.

2020
Dec. 31 Repairs and Maintenance (P 180,000 x 2/36) 10,000
Repairs and Maintenance Payable/Accounts Payable 10,000
Notes:
Effectivity of the 3-year service contract is .November 1, 2020
Expired portion is two months (November and December for 2020).
The contract is still unpaid until January 10, 2021.
2020
Dec. 31 SSS Premium Expense 10,000
SSS Premium Payable 10,000

2020
Dec. 31 NO ENTRY.
Only adjustment to subsidiary ledgers of two creditors.


2020
Dec. 31 Contribution to Profit Sharing Plan 6,500,000
Profit Sharing Payable 6,500,000
Supporting computation:
Based on excess profits: [(P 90,000,000 - P 25,000,000) x 10%] = P 6,500,000 (does not exceed)
Based on participants annual salaries: P 120,000,000 x 20% = P 24,000,000

2020
Dec. 31 Interest Expense (P 2,400,000 x 9% x 2/12) 36,000
Notes:
Interest Expense is from November 1 to December 31, 2020 or two months.

2020
Dec. 31 Sales Bonus 11,500,000
Sales Bonus Payable 11,500,000
First: P 50,000,000 x 10% = P 5,000,000

Second: P 100,000,000 x 5% = P 5,000,000
Third: (P 250,000,000 - P 175,000,000) x 2% = P 1,500,000
Total bonus = P 5,000,000 + P 5,000,000 + P 1,500,000 = P 11,500,000
ctions for the year
20. Effective date of

ue to the invoice being
on January 12, 2020.
ber 15, 2020. Checks

31, 2020. Invoice paid
he amount of P 180,000,
r 31, 2023. The office
share in the amount of

nce due of P 12,000.
nce was due to a client
s, but not to exceed
uded in Accounts
uary 10, 2021, it was
of 9%. The note was
or bonuses due at


ance due of P 12,000.
uded in Accounts
of 9%. The note was
or bonuses due at
MODULE 10
Audit of Current Liabilities and Related Accounts
Audit of Current Liabilities and Related Accounts

I. Nature of Fixed Assets
II. Audit Objectives
III. Audit Procedures
IV. Audit Working Papers and Other Documentation
A. Problems (Do-It-Your Self)

B. Multiple Choice Problems (Do-It-Your Self) (20 Questions)
C. Multiple Choice Theory - Substantive Audit Procedures (Do-It-Your Self) (20 Questions)
D. Multiple Choice Theory - Internal Controls (Do-It-Your Self) (20 Questions)
E. Pre-Test No. 10 - Theory (15 PTS) and Problems (30 PTS - 15 Questions) - 45 POINTS
F. Post-Test No. 10 - Theory (20 PTS) and Problems (25 Questions - 2points each) - 70 POINTS
DISCUSSION
I. NATURE OF INVENTORY
STRAIGHT PROBLEMS
Straight Problem 1
Dallas Corporation is selling audio and video appliances. The company’s fiscal year ends on March 31. The following
information relates to the obligations of the company as of March 31, 2021:
Notes Payable
Dallas has signed several notes with financial institutions. The maturities of these notes are given below. The total
unpaid interest for all of these notes amounts to P 340,000 on March 31, 2021.
Due Date Amount

April 31, 2021 700,000
July 31, 2021 900,000
February 1, 2022 800,000
April 30, 2022 1,200,000
June 30, 2022 1,500,000
Total 5,100,000
Estimated Warranties
during the 2018 – 2019fiscal year and still outstanding as of March 31, 2019, amounted to P 252,000. The warranty
costs on sales made from April 1, 2019 to March 31, 2020, are estimated at P 630,000. The actual warranty costs
incurred during 2019 – 2020 fiscal year are as follows:
during the 2018 – 2019fiscal year and still outstanding as of March 31, 2019, amounted to P 252,000. The warranty
costs on sales made from April 1, 2019 to March 31, 2020, are estimated at P 630,000. The actual warranty costs
incurred during 2019 – 2020 fiscal year are as follows:

Total 537,000
Trade Payables
Accounts payable for supplies, goods, and services purchases on open account amount to P 560,000 as of March 31,
2020.
Dividends
On March 10, 2020, Dallas’ board of directors declared a cash dividend of P 0.30 per ordinary share and a 10%
ordinary share dividend. Both dividends were to be distributed on April 5, 2020 to ordinary shareholders on record at
the close of business on March 31, 2020. As of March 31, 2020, Dallas has 5 million, P2 par value, ordinary shares
issued and outstanding.
Bonds Payable
Dallas issued P 5,000,000, 12% bonds, on October 1, 2014 at 96. The bonds will mature on October 1, 2024.
Interest is paid semi-annually on October 1 and April 1. Dallas uses the straight line method to amortize bond
discount.
QUESTIONS:
Based on the foregoing information, determine the adjusted balances of the following as of March 31, 2020:
. Estimated warranty payable

A. P 252,000
B. P 345,000
C. P 630,000
D. P 882,000
SOLUTION:
Warranty liability, March 31, 2019 252,000
Warranty expense, April 1, 2019 to Mach 31, 2020 630,000
Actual expenditures from April 1, 2019 to March 31, 2020:
From 2018 - 2019 sales -252,000
From 2019 – 2020 sales -285,000
Warranty liability, March 31, 2020 345,000
. Total current liabilities

A. P 6,445,000
B. P 5,105,000
C. P 5,445,000
D. P 3,945,000
SOLUTION:
Notes Payable:
April 31, 2020 700,000
July 31, 2020 900,000
February 1, 2021 800,000 2,400,000
Interest payable on notes 340,000
Warranty payable (See number 1) 345,000
Trade payables 560,000
Cash Dividend Payable (P 5,000,000 x .30 per share 1,500,000
Interest on bonds payable (P 5,000,000 x 12% x 6/12) 300,000
Total current liabilities 5,445,000
. Trade and Other Payables

A. P 5,445,000
B. P 5,100,000
C. P 3,045,000
D. P 2,700,000
SOLUTION:
Trade and
Notes Payable: Other Pay. Provisions
April 31, 2020 700,000
July 31, 2020 900,000
February 1, 2021 800,000
Interest payable on notes 340,000 340,000
Warranty payable (See number 1) 345,000 345,000
Trade payables 560,000 560,000
Cash Dividend Payable (P 5,000,000 x .30 per share 1,500,000 1,500,000
Interest on bonds payable (P 5,000,000 x 12% x 6/12) 300,000 300,000
Total 2,700,000 345,000
. Total noncurrent liabilities

A. P 7,700,000
B. P 7,500,000
C. P 7,590,000
D. P 7,610,000
SOLUTION:
Notes Payable – due April 30, 2021 1,200,000
Notes Payable – due June 30, 2021 1,500,000 2,700,000

Less: Discount on Bonds Payable
(P 5M x 4% x 54/120) 90,000 4,910,000
Total non-current liabilities 7,610,000
of
A. Existence
C. Completeness
D. Valuation
. Which of the following procedures is least likely to be performed before the balance sheet date?
A. Unpaid bills
B. Bills of lading
C. Shipping records
D. Unmatched sales invoices
C. Valuation or allocation
D. Completeness
Straight Problem 2
Computation of current liabilities
Beloved Company reported the following information on December 31, 2020:
Accounts Payable 1,000,000

Cash Dividend Payable 100,000
Discount on Bonds Payable 500,000
Income Tax Payable 250,000
Loan Payable 2,500,000
Patent 50,000
Unearned Rent Income 300,000
A. The loan payable is payable semi-annually for P 500,000 strating June 30, 2021
B. The loan of Jordan guaranteed by Beloved Company has the possibility that Jordan will be held liable for the
guarantee.
C. The bank overdraft is part of the cash management of Beloved Company.
Required:
Compute the following:
. Total current liabilities as of December 31, 2020
. Total noncurrent liabilities as of December 31, 2020
. Total liabilities as of December 31, 2020
SOLUTION:
LIABILITIES
Given Current Noncurrent Total
Bonds Payable 5,000,000 5,000,000
Loan Payable 2,500,000 1,000,000 1,500,000
Patent 50,000
Total Liabilities, 12/31/2020 2,650,000 6,015,000 8,665,000
Note 1:
The bank overdraft, which is part of cash management, is offset to any bank balance with positive balance as provided
under PAS 7.
ALTERNATIVE SOLUTION FOR REQUIREMENT 3:
Given Liabilities Remarks

Advances to Employees 45,000 Non-trade receivable
Bank Overdraft 10,000 See note 1 below
Bonds Payable 5,000,000 5,000,000
Cash Surrender Value of Life Insurance 75,000 Non-current asset - Investment
Loan of Jordan guaranteed by Beloved Company 500,000 Requires disclosure
Loan Payable 2,500,000 2,500,000
Patent 50,000 Intangible assets
Shares Dividends Payable 150,000 Shareholders' equity
Total Liabilities, 12/31/2020 8,665,000
Straight Problem 3
Reclassification Entries for Accounts Payable
In conjunction with your December 31, 2020 annual audit of the financial statements of Sulayman Machine Works, you
have obtained and examined the December 31, 2020, accounts payable trial balance. Your examination of this trial
balance disclosed the following open vouchers:
2021.
.
Loan Payable and Interest Expense accounts had been properly charged.
Loan Payable and Interest Expense accounts had been properly charged.
December 10, 2020, and the Office Equipment account was properly charged.
principal due on a 180-day P 40,000 note payable to the Acme Company. Charges to the Note Payable and
Interest Expense had been properly handled.
.
Voucher 751, containing a P 200,000 charge to Accounts Payable. This voucher represented a P 200,000
advance payment to Pandayan Heavy Machine Tool Company for a special order of ten gearboxes. These
gearboxes were to be used to produce ten custom machines ordered from Sulayman by Urduja Company, early
in December 2020. The P 200,000 Sulayman check was mailed to Pandayan Heavy Machine Tool Company on
January 2, 2021.
Instructions:
Prepare any necessary reclassification entries for items 1 to 6.
SOLUTION:

2020 (AJE NO. 1)
Dec. 31 Accounts Payable 380,000
Salaries Payable 380,000
Item No. 1
(AJE NO. 2)
Loan Payable 100,000
Item No. 2
(AJE NO. 3)
Withholdeing Taxes Payable 65,480
Item No. 4
(AJE NO. 4)
Notes Payable 40,000
Item No. 5
(AJE NO. 5)
31 Cash 200,000
Accounts Payable 200,000
Notes:
Item No. 3 is properly classified as Accounts Payable. The transaction was about acquisition on credit of
office equipment (computer machine).
Straight Problem 4
Warranties and Premium
Dolores Music Emporium carries a wide variety of music promotion techniques – warranties and premiums – to attract
customers.
Musical instruments and sound equipment are sold in a one year warranty replacement of parts and labor. The
estimated warranty costs, based on past experience, is 2% of sales.
The premium is offered on the recorded and sheet music. Customers receive a coupon for each peso spent on
recorded music and sheet music. Customers may exchange 200 coupons and P 20 for an AM/FM radio. Dolores pays
P 34 for each radio and estimates that 60% of the coupon given to customers will be redeemed.
Dolores’s total sales of 2020 were P 57,600,000 – P 43,200,000 from musical instruments and sound reproduction
equipment and P 14,400,000 from recorded music and sheet music. Replacement labor and parts for warranty work
totaled P 1,312,000 during 2020. A total of 52,000 AM/FM radio used in the program were purchased during the year
and there were 9,600,000 coupons redeemed in 2020.
The accrual method is used by Dolores to account for warranty and premium costs for financial reporting purposes.
The balance in the accounts related to warranties and premiums on January 1, 2020 were as shown below:
Inventory of Premium AM/FM Radio 319,600

Estimated Premium Claims Outstanding 358,400
Estimated Liability for Warranties 1,088,000
Required:
Based on the above and the result of your audit, determine the amounts that will be shown on the 2020 financial
statements for the following:
. Warranty Expense
. Premium Expense
SOLUTION:
. Warranty Expense

Warranty Expense in 2020 (as accrued) 864,000

Warranty Liability in 2020 (as accrued) - Provision 864,000
Warranty Liability, January 1, 2020, beginning balance (given) 1,088,000
Actual warranty costs incurred in 2020 -1,312,000
Estimated liability for warranties, 12/31/2020 640,000
. Premium Expense
Cost per unit of premium – AM/FM Radio, unadjusted 34

Cash remittance by customers upon redemption -20
Cost per unit of premium – AM/FM Radio, adjusted (Expense per unit) 14
Multiply by no. of AM/FM Radio expected to be redeemed om 2017
(14,400,000 x 60%) / 200 43,200 units
Inventory of AM/FM radio, January 1, 2020 319,600

Purchases in 2017 (52,000 x P 34) 1,768,000
Redeemed in 2017 (9,600,000 coupons / 200 = 48,000 x P 34) -1,632,000
Estimated Liability for Premiums, January 1, 2020 358,400

Estimated premiums to be redeemed in 2020 - Provision
[14,400,000 coupons / 200 = 72,000 x 60% x (P 34 – P 20)] 604,800
Actual redemptions in 2017 (9,600,000 / 200 = 48,000 x P 14) -672,000
Estimated Liability for Premiums, December 31, 2020 291,200
Straight Problem 5
Test for Proper Cut-Off
In conjunction with your firm's examination of the financial statements of Carmina, Inc. as of December 31, 2020, you
obtained from the voucher register the information shown in the work paper below:

. 12.18.2020 12-200


12.24.2020 12,300 Inventory
. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12


01.02.2021 111,500 Inventory

01.03.2021 84,000 Inventory


01.04.2021 55,000 Inventory
. 01.05.2021 01-004 Payroll, 12.21.2020 to 01.05.2021 (12


01.06.2021 64,000 Inquiry


01.10.2021 38,000 Inventory



Accrued liabilities of December 31, 2020 were as follows:

The Accrued Payroll, Accrued Interest Payable, and Accrued Royalties Payable accounts were reversed effective
January 1, 2021.
Instructions:
Review the data given above and prepare adjusting journal entries to correct the accounts on December 31, 2020.
Assume that the company follows FOB terms for recording inventory purchases.
SOLUTION:
Item No. Account Names Debit Credit
02 Insurance Expense (P 24,000 / 12 months 1/2) 1,000

06 Prepaid Subscription 5,000


Inventory 115,000
10 Legal Expenses 46,000


12 Inventory 55,000
(P 72,000 / 12 days x 8 days for year 2020 = P 48,000)
(Accrued in 2020 - Accrued Royalties Payable, P 39,000)
18 Properly recorded 27,667

(Accrued in 2020 - Accrued Interest Payable, P 26,667) 27,667
November = 30 days
December = 31

SUPPORTING ANALYSIS:
. 12.18.2020 12-200
Analysis:
Properly recorded:
Supplies on Hand 15,000

Analysis:
Properly recorded:
Requires year-end adjustment:

Insurance Expense 1,000
(P 24,000/12 x 1/2)
Analysis:
Properly recorded:
Repairs and Maintenance 19,000
12.24.2020 12,300 Inventory
Analysis:
Properly recorded:
Inventory 12,300
. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12

Analysis:
Properly recorded: 69,000
Vouchers Payable
Analysis:
Entry made in 2020:
Entry the should have been made in 2020:


Analysis:
Properly recorded
Utilities Expense 24,000

01.02.2021 111,500 Inventory
Analysis:
Entry made in 2020
Inventory 115,000
No Entry

Inventory 115,000

01.03.2021 84,000 Inventory
Analysis:
Properly recorded
Inventory 84,000
Analysis:
Entry made in 2020:
No entry



Analysis:
Entry made in 2020:
No entry



01.04.2021 55,000 Inventory
Analysis:
Entry made in 2020:
No entry

Inventory 55,000

Inventory 55,000
. 01.05.2021 01-004 Payroll, 12.21.2020 to 01.05.2021 (12

Analysis:
Already accrued in 2020.
P 72,000 / 12 days x 8 days in year 2020 = P 48,000

01.06.2021 64,000 Inventory
Analysis:

Analysis:
Entry made in 2020
Entry that should have been made in 2020

Required adjusting entry in 2020

None

01.10.2021
Merchandise shipped FOB
01.10.2021 38,000 Inventory
Analysis:

Analysis:
No expense transaction in year 2020

Analysis:
Entry made in 2020
(P 30,000 x 83/90)


None

Analysis:
Entry made in 2020
No Entry


Analysis:
Entry made in 2020


None
Straight Problem 6
Unrecorded Liabilities
Prepare any necessary audit adjustments for the following audit findings of unrecorded transactions for the year
ended December 31, 2020:
A.

2020
Dec. 31 Insurance Expense (P 180,000 x 1/36) 5,000
Insurance Payable 5,000
January 22, 2021.

2020
Dec. 31 Unused Office Supplies 100,000
Office Supplies Payable/Accounts Payable 100,000

2020
Dec. 31 Repairs and Maintenance (P 180,000 x 2/36) 10,000
Repairs and Maintenance Payable/Accounts Payable 10,000
2020
Dec. 31 SSS Premium Expense 10,000
SSS Premium Payable 10,000

2020
Dec. 31 NO ENTRY.
Only adjustment to subsidiary ledgers of two creditors.


2020
Dec. 31 Contribution to Profit Sharing Plan 6,500,000
Profit Sharing Payable 6,500,000
Supporting computation:
Based on excess profits: [(P 90,000,000 - P 25,000,000) x 10%] = P 6,500,000 (does not exceed)
Based on participants annual salaries: P 120,000,000 x 20% = P 24,000,000

2020
Dec. 31 Interest Expense (P 2,400,000 x 9% x 2/12) 36,000


2020
Dec. 31 Sales Bonus 11,500,000
Sales Bonus Payable 11,500,000
First: P 50,000,000 x 10% = P 5,000,000

Second: P 100,000,000 x 5% = P 5,000,000
Third: (P 250,000,000 - P 175,000,000) x 2% = P 1,500,000
Total bonus = P 5,000,000 + P 5,000,000 + P 1,500,000 = P 11,500,000
MULTIPLE CHOICE PROBLEMS - CURRENT LIABILITIES (DO-IT-YOURSELF)
MCQ PROBLEM 1
Gemini Corporation presented to you the analysis of its liabilities as of December 31, 2020:
Accounts Payable, net of creditor's debit balances of P 200,000. 8,000,000

Accounts Receivable credit balances 1,000,000
Accrued Operating Expenses 300,000
Deferred Revenue 350,000
Mortgage Payable 1,700,000
Premium on Bonds Payabe 200,000
Premium Payable 1,200,000
Stock Dividends Payable 1,500,000
A. The accounts payable is also net of post-dated checks of P 100,000 issued to supplier.
B. The deferred tax liability is based on temporary differences that will be reversed in 2021.
Question 1:
What is the total amount of current liabilities in the statement of financial position as of December 31, 2020?
A. P 10,800,000
B. P 11,150,000
C. P 11,550,000
D. P 14,750,000
SOLUTION:
Accounts Payable
Unadjusted balance 8,000,000
Add: Creditors' debit balance 200,000
Post-dated check to suppliers 100,000 8,300,000
Total current liabilities, 12/31/2020 10,800,000
NOTES:
Classified as noncurrent liabilities:
Bonds Payable
Deferred Tax Liability
Mortgage Payable
Deferred Revenue
Classified as Shareholders' Equity:

Stock Dividends Payable
MCQ PROBLEM 2
King Mark Company has a 10%, P 5,000,000 loan payable as of December 31, 2020 that is maturing on July 1, 2021.
Interest on loan is payable every July 1 and December 31.
On February 1, 2021, King Mark Company entered into a financing agreement with a bank to refinance the loan on a
long-term basis. Both parties are financially capable of honoring the agreement's provisions. King Mark's financial
statements were authorized to issue on March 10, 2021.
Question 2:
How much is presented as current liability in relation to the loan in King Mark's 2020 year-end statement of financial
position?
A. P 5,000,000
B. P 500,000
C. P 250,000
D. Zero
SOLUTION:
The amount to be reported as current liabilities in 2020 is P 5,000,000 since the grace period was granted after the
reporting date.
MCQ PROBLEM 3
The accounts payable balance of Giovanni Corporation as of December 31, 2020 was P 24,000,000 before any
adjustments as follows:
A. On December 29, 2020, Razzini Company, a supplier, authorized Giovanni Corporation to return for full
credit goods shipped and billed at P 600,000 on December 15, 2020. The returned goods were shipped by
Giovanni Corporation on December 31, 2020. On January 6, 2021, a credit memo of P 600,000 was
received and recorded.
B. On December 16, 2020, goods shipped to Giovanni Corporation with an invoice cost of P 1,500,000 were
lost in transit. On January 16, 2021, Giovanni Corporation filed a P 1,500,000 claim against the common
carrier.
Question 3:
What should Giovanni Corporation report as accounts payable on December 31, 2020?
A. P 25,500,000
B P 24,900,000
C. P 23,400,000
D. P 22,500,000
SOLUTION:
Unadjusted Accounts Payable balance, 12/31/2022 24,000,000
Adjustments:
A. Purchase returns to Razzini Company -600,000
B. Goods sold lost in transit on 12/16/2020
(assumed it was FOB Destination) 1,500,000
Adjusted Accounts Payable balance, 12/31/2022 24,900,000
MCQ PROBLEM 4
In connection with the audit of liabilities, you were able to onbtain the following information:
Luxury Company is a car manufacturer who gives warranties to its clients at the time of purchase. Under the terms of
sale contract, Luxury Company undertakes a repair manufacturing defects or replace defective parts that become
apparent within 5 years from the date of sale.
Based onprevious experience, it is probable that there will be some claims under warranties Estimated cash flows
related to the cars covered by warranty as of the reporting period are as follows:
Likelihood occurrence Estimated cash flows

Major defects 4% 2,000,000
Minor defects 10% 500,000
No defects 86% 0
Question 4:
How much should Luxury Company recognize as warranty provision?
A. None
B. P 50,000
C. P 80,000
D. P 130,000
SOLUTION:
Likelihood occurrence Estimated cash flows Provision
Major defects 4% 2,000,000 80,000
Minor defects 10% 500,000 50,000
No defects 86% 0 0
Total provisions 130,000
MCQ PROBLEM 5
At December 31, 2020, you are contacted by the chief accountant of Exotic Corporation to audit its financial
statements for the current year, and he provided you the following information:
Accounts payable arising from purchase of goods, net of debit balances of P30,000 170,000
Accounts receivable, net of credit balances P40,000 360,000
Advances received from customers on purchase orders 64,000
Accrued interest on bonds payable 360,000
Banco de Oro Checking Account - Overdraft 90,000
Cash dividends payable 80,000
Convertible bonds, due January 31, 2022 1,000,000
Dividends in arrears on preferred stock, not yet declared 200,000
Deposit on containers 50,000
Deficiency VAT assessment being contested 500,000
Deferred revenue 87,000
Employees’ income tax withheld 20,000
Estimated damages to be paid as a result of unsatisfactory
performance on a contract 160,000
Estimated expenses on meeting guarantee for service
requirements on merchandise sold 120,000
Estimated premiums payable 75,000
First mortgage serial bonds, payable in semi-annual installments
of P50,000, due April 1 and October 1 of each year 2,000,000
Notes Payable arising from:
Purchase of goods 304,000
5 year-bank loans, on which marketable securities valued at P 600,000
have been pledged as security, P400,000 due on June 30, 2021;
P100,000 due on Dec. 31, 2021 500,000
Advances by officers, due June 30, 2021 50,000
Notes receivable discounted 200,000
Ordinary shares warrants outstanding 120,000
Ordinary shares options outstanding 210,000
Philippine National Bank Savings Account 390,000
Reserve for general contingencies 400,000
Share Dividends Payable 100,000
Unused letters of credit 400,000
. The 2020 financial statements were issued on March 31, 2021.
. The P 400,000 note payable was replaced by an 18-month note for the same amount on March 1, 2021.
Exotic Corporation is also considering similar action on the P 100,000 note payable due on December 31,
2021.
. James Hanson, a former employee, filed a lawsuit on December 1, 2020 seeking P 200,000 for unlawful
dismissal. Exotic Corporation's attorneys believe that the suit is without merit. As of year-end, no court date
has been set.
. The Bureau of Internal Revenue assessed Exotic Corporation on January 15, 2021 an additional income tax
of P 300,000 for the 2018 tax year. Exotic's attorneys and tax accountants have stated that it is likely that
the BIR will agree to a P 200,000 settlement.
Based on the above and the result of your audit, answer the following questions:
Question 5:
What is the total current liabilities that would be reported in the statement of financial position as of December 31,
2020?
A. P 2,400,000
B. P 2,100,000
C. P 2,300,000
D. P 2,500,000
Question 6:
What is the total noncurrent liabilities that would be reported in the statement of financial position as of December
31, 2020?
A. P 3,400,000
B. P 3,000,000
C. P 2,900,000
D. P 3,300,000
Question 7:
What is the total liabilities that would be reported in the statement of financial position as of December 31, 2020?
A. P 5,800,000
B. P 5,000,000
C. P 5,400,000
D. P 5,200,000
SOLUTION:
LIABILITIES
Current Noncurrent
Accounts payable arising from purchase of goods
(P 170,000 + P 30,000) 200,000
Accounts receivable credit balances 40,000
of P50,000, due April 1 and October 1 of each year 100,000 1,900,000
5 year-bank loans, on which marketable securities valued
at P 600,000 have been pledged as security, P400,000
due on June 30, 2021; P100,000 due on Dec. 31, 2021 500,000
Estimated Income Tax Payable (additional assessment) 200,000
Total 2,500,000 2,900,000
No. 5 No. 6
MCQ PROBLEM 6
The following information relates to Sonic Company’s obligations as of December 31, 2020. For each of the numbered items,
determine the amount if any, that should be reported as current liability in Sonic’s December 31, 2020 balance sheet.
Question no. 8:
ACCOUNTS PAYABLE
Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit balances in
suppliers’ accounts. The unpaid voucher file included the following items that not had been recorded as
of December 31, 2020:
A. A Company – P224,000 merchandise shipped on December 31, 2020, FOB destination; received on
January 10, 2021.
B. B, Inc. – P192,000 merchandise shipped on December 26, 2020, FOB shipping point; received on
January 16, 2021.
C. C Super Services – P144,000 janitorial services for the three-month period ending January 31, 2021.
D. MERALCO – P67,200 electric bill covering the period December 16, 2020 to January 15, 2021.
On December 28, 2020, a supplier authorized Sonic to return goods billed at P160,000 and shipped on
December 20, 2020. The goods were returned by Sonic on December 28, 2020, but the P160,000 credit
memo was not received until January 6, 2021.
A. P 5,923,200
B. P 5,712,000
C. P 5,601,600
D. P 5,841,600
SOLUTION:
Accounts Payable, unadjusted balance 5,440,000
Adjustments:
Debit balance in suppliers' account 240,000
A Company - correctly not recorded in 2020 -
B, Inc. unrecorded purchases in 2020 192,000
C Super Services (P 192,000 x 2/3) 96,000
Meralco (P 67,200 x 1/2 month) 33,600
Purchase return - unrecorded in 2020 -160,000
Accounts Payable, adjusted balance 5,841,600
Question no. 9:
PAYROLL
Items related to Sonic’s payroll as of December 31, 2020 are:
Accrued salaries and wages 776,000

Payroll deductions for:
Income Taxes Withheld 56,000
SSS Contributions 64,000
Philhealth Contributions 16,000
A. P 776,000
B. P 992,000
C. P 832,000
D. P 912,000
SOLUTION:
Add: Payroll deductions
Withholding Taxes Payable 56,000
SSS Contributions Payable 64,000
Philhealth Contributions Payable 16,000 136,000
Total current liabilities 912,000
Question no. 10:
LITIGATION
In May, 2020, Sonic became involved in a litigation. The suit is being contested, but Sonic’s lawyer believes it is
possible that Sonic may be held liable for damages estimated in the range between P2,000,000 and P3,000,000, and
no amount is a better estimate of potential liability than any other amount.
A. Zero
B. P 2,000,000
C. P 3,000,000
D. P 2,500,000
SOLUTION:
It is only possible to be held liable for damages and not probably. This requires only disclosure.
Question no. 11:

BONUS OBLIGATION
Sonic Company’s president gets an annual bonus of 10% of net income after bonus and income tax. Assume the tax
rate of 30% and the correct income before bonus and tax is P9,600,000. (Ignore the effects of other given items on
net income.)
A. P 722,600
B. P 395,000
C. P 2,240,000
D. P 628,000
SOLUTION:
B = 10% (NI - B - T)
B = 10% [P 9,600,000 - B - 30%(P 9,600,000 - B)]
B = 10% [P 9,600,000 - B - P 2,880,000 + 0.3B)]
B = P 960,000 - 0.10B - P 288,000 + 0.03B]
B = P 672,000 - 0.07B
B + 0.07B = P 672,000
1.07B = P 672,000
B = P 672,000 / 1.07
B = P 628,037
Question no. 12:

NOTE PAYABLE
A note payable to the Bank of the Philippine Islands for P2,400,000 is outstanding on December 31, 2020. The note is
dated October 1, 2019, bears interest at 18%, and is payable in three equal annual installment of P800,000. The first
interest and principal payment was made on October 1, 2020.
A. P 800,000
B. P 908,000
C. P 72,000
D. P 872,000
SOLUTION:
Liability, 12/31/2020
Current Noncurrent
Notes Payable, 10/1/2019 2,400,000
Less: First payment, 10/1/2020 800,000
Notes Payable, 10/1/2020, after first payment 1,600,000 800,000 800,000
Add: Interest payable during 2020
(P 1,600,000 x 18% x 3/12) 72,000
Total current liabilities, 12/31/2020 872,000
Question no. 13:

PURCHASE COMMITMENT
During 2020, Sonic entered in a noncancellable commitment to purchase 320,000 units of inventory at fixed price of
P5 per unit, delivery to be made in 2021. On December 31, 2020, the purchase price of this inventory item had fallen
to P4.40 per unit. The goods covered by the purchase contract were delivered on January 28, 2021.
A. Zero
B. P 1,600,000
C. P 1,408,000
D. P 192,000
SOLUTION:
Estimated Liability for Purchase Commitment = (P 5.00 - P 4.40) x 320,000 units = P 192,000
Related Journal entry:
Loss on Purchase Commitment 192,000
Estimated Liability for Purchase Commitment 192,000
Question no. 14:

DEFERRED TAXES
On December 31, 2020, Sonic’s deferred income tax account has a 2020 ending credit balance of P772,800,
consisting of the following items:
Caused by temporary difference in accounting: Deferred Tax

For gross profit on installment sales 376,000 Credit
For depreciation on propert and equipment 576,000 Credit
For product warranty expense 179,200 Debit
772,800 Credit
A. P 772,800
B. P 952,000
C. P 196,800
D. Zero
SOLUTION:
Answer is ZERO
The revised PAS 1 paragraph 56 states, "When an entity presents current and non ‑current assets, and current and
non‑current liabilities, as separate classifications in its statement of financial position, it shall not classify deferred
tax assets (liabilities) as current assets (liabilities).
Question no. 15:

PRODUCT WARRANTY
Sonic has a one year product warranty on selected items in its product line. The estimated warranty liability on sales
made during 2019, which was outstanding as of December 31, 2019, amounted to P416,000. The warranty costs on
sales made in 2020 are estimated at P1,504,000. Actual warranty costs incurred during the current 2020 fiscal year
are as follows:
Warranty claims honored on 2019 sales 416,000

Total warranty claims honored 1,408,000
A. Zero
B. P 1,504,000
C. P 96,000
D. P 512,000
SOLUTION:
Warranty Payable, January 1, 2020 416,000
Add: Warranty Expense fof 2020 1,504,000
Total 1,920,000
Less: Warranty claims honored in 2020
From year 2019 sales 416,000
From year 2020 sales 992,000 1,408,000
Warranty Payable, December 31, 2020 512,000
Question no. 16:

PREMIUMS
To increase sales, Sonic Company inaugurated a promotional campaign on June 30, 2020. Sonic placed a coupon
redeemable for a premium in each package of product sold. Each premium costs P100. A premium is offered to
customers who send in 5 coupons and a remittance of P30. The distribution cost per premium is P20. Sonic estimated
that only 60% of the coupons issued will be redeemed. For the six months ended December 31, 2020, the following is
available:
Packages of products sold 160,000

Premiums purchased 16,000
Coupons redeemed 64,000
A. P 1,728,000
B. P 1,152,000
C. P 1,600,000
D. P 576,000
SOLUTION:
Premium cost 100
Less: Remittance by customers 30
Net Premium cost 70
Add: Distribution cost 20
Total premium cost 90
Multiply by estimated redemption at year end:
No. of packages of product sold 160,000
Multiply by expected redemption % 60%
Estimated no. of packages to be redeemed 96,000
Less: Number of coupons redeemed 64,000
Estim. Number of premiums no yet redeemed 32,000
Divide by required number of coupons 5 6,400
Estimated Premium Liability at 12/31/2020 576,000
Question no. 17:

DUE TO PA-TWO-BOAN COMPANY
Sonic’s accounting records show that as of December 31, 2020, P1,280,000 was due to Pa-Two-Boan Company for
advances made against P1,600,000 of trade accounts receivable assigned to the finance company with recourse.
A. Zero
B. P 1,600,000
C. P 320,000
D. P 1,280,000
SOLUTION:
The transaction involves assignment of accounts receivable, wherein the company obtained a loan using the
receivables as security. Accounts Receivable - assigned will be included in Trade and Other Receivables account,
while the related loan will be reported under the current liabilities.
Related Journal Entry:

Cash 1,280,000
Due to Pa-Two-Boan Company 1,280,000
Accounts Receivable - Assigned 1,600,000

Accounts receivable - Unassigned 1,600,000
MULTIPLE CHOICE PROBLEMS - THEORY (DO-IT-YOURSELF)

Substantive Audit Procedures for Current Liabilities
of
B Presentation and disclosure
C. Completeness
D. Valuation or allocation
. An auditor performs a test to determine whether all merchandise for which the client was billed was received.
The population for this test consists of all
A. Merchandise received
B. Vendor's invoices
C. Canceled checks
D. Receiving reports
. The primary audit test to determine if accounts payable are valued properly is
A. Confirmation of accounts payable
B. Vouching accounts payable to suporting documentation
C. As analytical procedure
D. Verification that accounts payable was reported as a current liability in the statement of financial position
.
Which of the following procedures is least likely to be performed before the statement of financial position date?
.
An audit assistant found a purchase order for a regular supplier in the amount of P5,500. The purchase order
was dated after receipt of goods. The purchasing agent had forgotten to issue purchase order. Also a
disbursement of P450 for materials did not have a receiving report. The assistant wanted to select additional
purchase orders for investigation but was unconcerned about lack of receiving report. The audit director should
A. Agree with the assistant because the amount of the purchase order exception was considerably larger than
the receiving report exception
B. Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that
the failure to fill out a report didn’t happen very often.
C. Disagree with the assistant because two problems have an equal risk of loss associated with them.
D. Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with
it.
. When using confirmation to provide evidence about completeness assertion for accounts payable, the
appropriate population most likely is
A. Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable subsidiary ledger.
C. Payees of checks drawn in the month after the year end.
D. Invoices filed in the entity’s open invoice file.
. Which of the following is a substantive test that an auditor is most likely to perform to verify the existence and
valuation of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and
accounted for.
B. Receiving the client’s mail, unopened, for a reasonable period of time after year end
to search for unrecorded vendor’s invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving
reports.
D. Confirming accounts payable balances with known suppliers who have zero balances.
. Only one of the following four statements, which compare confirmation of accounts payable with suppliers and
confirmation of accounts receivable with debtors is false. The false statement is that
A. Confirmation of accounts receivable with debtors is a more widely accepted auditing procedures than is
confirmation of accounts payable with suppliers.
B. Statistical sampling techniques are more widely accepted in the confirmation of accounts payable than in
the confirmation of accounts receivable.
C. As compared with the confirmation of accounts receivable, the confirmation of accounts payable will tend to
emphasize accounts with zero balances at the balance sheet date.
D. It is less likely that the confirmation request sent to the supplier will show the amount owed than that
request sent to the debtor will show the amount due.
. When title to merchandise in transit has passed to the audit client the auditor engaged in the performance of a
purchase cut-off will encounter the greatest difficulty in gaining assurance with respect to the
A. Quantity
B. Quality
C. Price
D. Terms
. Which of the following audit procedures is least likely to detect an unrecorded liability?
A Analysis and recomputation of interest expense.
B. Analysis and recomputation of depreciation expense.
C. Mailing of standard bank confirmation forms.
D. Reading of the minutes of meetings of the board directors.
A. Unpaid bills
B. Shipping records
C. Bills of lading
D. Unmatched Sales Invoices
. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the
related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine
whether they are supported by receiving reports.
C. Examining unusual relationships between monthly accounts payable balances and recorded cash
payments.
D. Reconciling vendors’ statement to the file of receiving reports to identify items received just prior to the
balance sheet date.
. In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor is most interested in
examining the purchase
A. Journa;
B. Requisitions
C. Orders
D. Invoices
. Which of the following procedures relating to the examination of accounts payable could the auditor delegate
entirely to the client’s employees?
A. Test footings in the accounts payable ledger
B. Reconcile unpaid invoices to vendors statements
C. Prepare a schedule of accounts payable
D. Mail confirmations for selected account balances
A. Existence and occurrence
C. Completeness
. An auditor’s program to audit long term debt should include steps that require
A. Examining bond trust indentures
B. Inspecting the accounts payable subsidiary ledger.
C. Investigating credits to the bond interest income account.
D. Verifying the existence of the bondholders.
. In an audit of bonds payable, an auditor expects the trust indenture to include the
A. Auditee’s debt-to-equity ratio at the time of issuance.
B. Effective yield of the bonds issued.
C. Subscription list.
D. Description of the collateral
. In auditing long-term bonds payable, an auditor most likely will

A. Perform analytical procedures on the bond premium and discount accounts.
B. Examine documentation of assets purchased with bond proceeds or liens
C. Compare interest with the bond payable amount for reasonableness.
D. Confirm the existence of individual bondholders at year-end.
. The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts
payable because
A. Accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of
completed transactions
B Accrued liability balances are less material than accounts payable balances.
C. Evidence supporting accrued liabilities in nonexistence while evidence supporting accounts payable is
readily available.
D. Accrued liabilities at year-end will become accounts payable during the following year.
. The auditor is most likely to verify accrued commissions payable in conjunction with the
A. Sales cutoff test
B Verification of contingent liabilities
C. Review of post balance sheet date disbursements
D. Examination of trade accounts payable

Internal Control for Current Liabilities
. Which of the following is a primary function of the purchasing department?

A. Authorizing the acquisition of goods.
B. Ensuring the acquisition of goods of a specific quality.
C. Verifying propriety of goods acquired.
D. Reducing expenditures for goods acquired.
. Jackson, the purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store.
Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby
enabling hisrelative to buy at Judd’s wholesale prices. Jackson was probably able to accomplish this because of
Judd’s poor internalcontrol over
A. Purchase Orders
B. Purchase Requisitions
C. Cash Receipts
D. Perpetual inventory records
. To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a
separation of which of the following functions?
A. Cash disbursements and invoice verification
B. Invoice verification and merchandise ordering
C. Physical handling of merchandise received and preparation of receiving reports
D. Check signing and cancellation of payment documentation.
. Which of the following internal control procedures is effective in preventing duplicate payment of vendors'
invoices?
A. The invoices should be stamped, perforated or otherwise effectively cancelled before subsmission for
approval of the voucher.
B. Unused vocher forms should be prenumbered and accounted for.
C. Cancelled checks should be sent to person other than the cashier or accounting department personnel.
D. Properly authorized and approved vouchers with appropriate documentation should be the basis for check
preparation.
. Effective controls relevant to purchasing of raw materials should usually include all of the following except
A. Systematic reporting of product changes that will affect raw materials.
B. Determining the need for the raw materials prior to preparing the purchase order.
C Obtaining third-party written quality and quantity reports prior to payment for the raw materials.
D. Obtaining financial approval prior to making a commitment.
. Effective internal control over purchases generally can be achieved in a well-planned organizational structure
with a separate purchasing department that has
A. The responsibility of reviewing purchase orders issued by user departments.
B. The authority to make purchases of requisitioned materials and services.
C. A direct reporting responsibility to the controller of the organization.
D. The ability to prepare payment vouchers based on the information on a vendor's invoice.
. Hansel Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Hansel will
probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if
A. Partial payments to vendors are continuously made in the ordinary course of business.
B. It is difficult to reconcile vendors’ monthly statements.
C. Vendors’ requests for confirmation of receivables often go unanswered for several months until paid
invoices can be reviewed.
D. There are usually invoices in an unmatched invoice file.
. Which of the following most likely would approve the issuance of notes payable?
A. Controller.
B. Payroll.
C. Personnel.
D. Treasurer.
. The primary reason for preparing a reconciliation between interest bearing obligations outstanding during the
year and interest expense presented in the financial statements is to:
A. Evaluate internal control over securities.
B. Determine the validity of prepaid interest expense.
C. Ascertain the reasonableness of imputed interest.
D. Detect unrecorded liabilities.
. A client's procurement system ends with the assumption of a liability and the eventual payment of the liability.
Which of the following best describes the auditors' primary concern with respect to liabilities resulting from the
procurement system?
A. Accounts payable are not materially understated.
B. Authority to incur liabilities is restricted to one designated person.
C. Acquisition of materials is not made from the vendor or one group pf vendors.
D. Commitments for all purchases are made only after established competitive bidding procedures are
followed.
March 31. The following
ven below. The total
lity on sales made

52,000. The warranty
ctual warranty costs
560,000 as of March 31,
share and a 10%

areholders on record at
value, ordinary shares
October 1, 2024.
o amortize bond
rch 31, 2020:

LT Bor. -
Current
700,000
900,000
800,000
2,400,000
g documents?
e held liable for the

tive balance as provided
Remarks
sset - Investment
man Machine Works, you

xamination of this trial
a cash transfer to the

ash transfer was made
mployees on January 4,

Works on January 1,
00,000, each plus
ucher indicated that the
an invoice from
chine was installed
ucher covered income
e total interest and

Note Payable and
nted a P 200,000
gearboxes. These
Urduja Company, early
hine Tool Company on
sition on credit of
d premiums – to attract
s and labor. The
h peso spent on
FM radio. Dolores pays
d.
sound reproduction
arts for warranty work
chased during the year
l reporting purposes.
shown below:
the 2020 financial

ecember 31, 2020, you
Account Charged
Supplies on Hand
Prepaid Insurance
Salaries and Wages

Utilities Expense
egal Expense
Medical Expenses
Salaries and Wages
Manufacturing Costs
nterest Expense
Dividends Payable
e reversed effective
December 31, 2020.

Account Charged
Supplies on Hand
Prepaid Insurance

Salaries and Wages
Utilities Expense
egal Expense
Medical Expenses
Salaries and Wages
Manufacturing Costs
nterest Expense
Dividends Payable
ctions for the year



nce due of P 12,000.
uded in Accounts
of 9%. The note was
or bonuses due at
OURSELF)
ber 31, 2020?

aturing on July 1, 2021.
efinance the loan on a

ing Mark's financial
statement of financial
was granted after the
0,000 before any
tion to return for full

goods were shipped by
f P 600,000 was
t of P 1,500,000 were
against the common
se. Under the terms of
e parts that become
stimated cash flows
dit its financial

nt on March 1, 2021.
due on December 31,
200,000 for unlawful

year-end, no court date
an additional income tax

ed that it is likely that
tion as of December 31,
position as of December
of December 31, 2020?
IABILITIES
Total
5,400,000
No. 7
he numbered items,
ance sheet.
ry 31, 2021.
wyer believes it is
0 and P3,000,000, and
me tax. Assume the tax

other given items on
er 31, 2020. The note is

of P800,000. The first
entory at fixed price of
ventory item had fallen
2021.
e of P772,800,
sets, and current and

not classify deferred
ranty liability on sales

The warranty costs on
rrent 2020 fiscal year
onic placed a coupon
mium is offered to
is P20. Sonic estimated
1, 2020, the following is
wo-Boan Company for

pany with recourse.
loan using the
eceivables account,
ELF)
billed was received.
t of financial position
inancial position date?
The purchase order

order. Also a
to select additional
e audit director should
onsiderably larger than
the receiving clerk that
ated with them.

of loss associated with
payable, the
fy the existence and
orders are used and
ders and receiving
ble with suppliers and
procedures than is
ounts payable than in
unts payable will tend to
t owed than that
the performance of a
the
g documents?
etermine whether the
et date to determine
ecorded cash
ed just prior to the
s most interested in
he auditor delegate

verification of accounts
ayable are the result of
ccounts payable is
ELF)
a retail hardware store.

COD basis thereby
omplish this because of
le area should include a
ment of vendors'
e subsmission for
partment personnel.
be the basis for check
following except
anizational structure
ledger. Hansel will

iary ledger if
months until paid
tstanding during the
yment of the liability.

es resulting from the
procedures are
MULTIPLE CHOICE PROBLEMS - CURRENT LIABILITIES (DO-IT-YOURSELF)
MCQ PROBLEM 1
Gemini Corporation presented to you the analysis of its liabilities as of December 31, 2020:
Accounts Payable, net of creditor's debit balances of P 200,000. 8,000,000

Deferred Revenue 350,000
Mortgage Payable 1,700,000
Premium on Bonds Payabe 200,000
Stock Dividends Payable 1,500,000
A. The accounts payable is also net of post-dated checks of P 100,000 issued to supplier.
B. The deferred tax liability is based on temporary differences that will be reversed in 2021.
Question 1:
What is the total amount of current liabilities in the statement of financial position as of December 31, 2020?
A. P 10,800,000
B. P 11,150,000
C. P 11,550,000
D. P 14,750,000
MCQ PROBLEM 2
King Mark Company has a 10%, P 5,000,000 loan payable as of December 31, 2020 that is maturing on July 1, 2021.
Interest on loan is payable every July 1 and December 31.
On February 1, 2021, King Mark Company entered into a financing agreement with a bank to refinance the loan on a
long-term basis. Both parties are financially capable of honoring the agreement's provisions. King Mark's financial
statements were authorized to issue on March 10, 2021.
Question 2:
How much is presented as current liability in relation to the loan in King Mark's 2020 year-end statement of financial
position?
A. P 5,000,000
B. P 500,000
C. P 250,000
D. Zero
MCQ PROBLEM 3
The accounts payable balance of Giovanni Corporation as of December 31, 2020 was P 24,000,000 before any
adjustments as follows:
A. On December 29, 2020, Razzini Company, a supplier, authorized Giovanni Corporation to return for full
On December 29, 2020, Razzini Company, a supplier, authorized Giovanni Corporation to return for full
B. On December 16, 2020, goods shipped to Giovanni Corporation with an invoice cost of P 1,500,000 were
lost in transit. On January 16, 2021, Giovanni Corporation filed a P 1,500,000 claim against the common
carrier.
Question 3:
What should Giovanni Corporation report as accounts payable on December 31, 2020?
A. P 25,500,000
B P 24,900,000
C. P 23,400,000
D. P 22,500,000
MCQ PROBLEM 4
In connection with the audit of liabilities, you were able to onbtain the following information:
Luxury Company is a car manufacturer who gives warranties to its clients at the time of purchase. Under the terms of
sale contract, Luxury Company undertakes a repair manufacturing defects or replace defective parts that become
apparent within 5 years from the date of sale.
Based onprevious experience, it is probable that there will be some claims under warranties Estimated cash flows
related to the cars covered by warranty as of the reporting period are as follows:
Likelihood occurrence Estimated cash flows

Major defects 4% 2,000,000
Minor defects 10% 500,000
No defects 86% 0
Question 4:
How much should Luxury Company recognize as warranty provision?
A. None
B. P 50,000
C. P 80,000
D. P 130,000
MCQ PROBLEM 5
At December 31, 2020, you are contacted by the chief accountant of Exotic Corporation to audit its financial
statements for the current year, and he provided you the following information:
Accounts payable arising from purchase of goods, net of debit balances of P30,000 170,000
Accounts receivable, net of credit balances P40,000 360,000
Dividends in arrears on preferred stock, not yet declared 200,000
Deficiency VAT assessment being contested 500,000
of P50,000, due April 1 and October 1 of each year 2,000,000
5 year-bank loans, on which marketable securities valued at P 600,000
have been pledged as security, P400,000 due on June 30, 2021;
P100,000 due on Dec. 31, 2021 500,000
Notes receivable discounted 200,000
Ordinary shares warrants outstanding 120,000
Ordinary shares options outstanding 210,000
Philippine National Bank Savings Account 390,000
Reserve for general contingencies 400,000
Share Dividends Payable 100,000
Unused letters of credit 400,000
. The 2020 financial statements were issued on March 31, 2021.
. The P 400,000 note payable was replaced by an 18-month note for the same amount on March 1, 2021.
Exotic Corporation is also considering similar action on the P 100,000 note payable due on December 31,
2021.
. James Hanson, a former employee, filed a lawsuit on December 1, 2020 seeking P 200,000 for unlawful
dismissal. Exotic Corporation's attorneys believe that the suit is without merit. As of year-end, no court date
has been set.
. The Bureau of Internal Revenue assessed Exotic Corporation on January 15, 2021 an additional income tax
of P 300,000 for the 2018 tax year. Exotic's attorneys and tax accountants have stated that it is likely that
the BIR will agree to a P 200,000 settlement.
Based on the above and the result of your audit, answer the following questions:
Question 5:
What is the total current liabilities that would be reported in the statement of financial position as of December 31,
2020?
A. P 2,400,000
B. P 2,100,000
C. P 2,300,000
D. P 2,500,000
Question 6:
What is the total noncurrent liabilities that would be reported in the statement of financial position as of December
31, 2020?
A. P 3,400,000
B. P 3,000,000
C. P 2,900,000
D. P 3,300,000
Question 7:
A. P 5,800,000
B. P 5,000,000
C. P 5,400,000
D. P 5,200,000
MCQ PROBLEM 6
The following information relates to Sonic Company’s obligations as of December 31, 2020. For each of the numbered items,
determine the amount if any, that should be reported as current liability in Sonic’s December 31, 2020 balance sheet.
Question no. 8:
ACCOUNTS PAYABLE
Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit balances in
suppliers’ accounts. The unpaid voucher file included the following items that not had been recorded as
of December 31, 2020:
A. A Company – P224,000 merchandise shipped on December 31, 2020, FOB destination; received on
January 10, 2021.
B. B, Inc. – P192,000 merchandise shipped on December 26, 2020, FOB shipping point; received on
January 16, 2021.
C. C Super Services – P144,000 janitorial services for the three-month period ending January 31, 2021.
D. MERALCO – P67,200 electric bill covering the period December 16, 2020 to January 15, 2021.
On December 28, 2020, a supplier authorized Sonic to return goods billed at P160,000 and shipped on
December 20, 2020. The goods were returned by Sonic on December 28, 2020, but the P160,000 credit
memo was not received until January 6, 2021.
A. P 5,923,200
B. P 5,712,000
C. P 5,601,600
D. P 5,841,600
Question no. 9:
PAYROLL
Items related to Sonic’s payroll as of December 31, 2020 are:

Payroll deductions for:
Income Taxes Withheld 56,000
SSS Contributions 64,000
Philhealth Contributions 16,000
A. P 776,000
B. P 992,000
C. P 832,000
D. P 912,000
Question no. 10:

LITIGATION
In May, 2020, Sonic became involved in a litigation. The suit is being contested, but Sonic’s lawyer believes it is
possible that Sonic may be held liable for damages estimated in the range between P2,000,000 and P3,000,000, and
no amount is a better estimate of potential liability than any other amount.
A. Zero
B. P 2,000,000
C. P 3,000,000
D. P 2,500,000
Question no. 11:

BONUS OBLIGATION
Sonic Company’s president gets an annual bonus of 10% of net income after bonus and income tax. Assume the tax
rate of 30% and the correct income before bonus and tax is P9,600,000. (Ignore the effects of other given items on
net income.)
A. P 722,600
B. P 395,000
C. P 2,240,000
D. P 628,000
Question no. 12:

NOTE PAYABLE
A note payable to the Bank of the Philippine Islands for P2,400,000 is outstanding on December 31, 2020. The note is
dated October 1, 2019, bears interest at 18%, and is payable in three equal annual installment of P800,000. The first
interest and principal payment was made on October 1, 2020.
A. P 800,000
B. P 908,000
C. P 72,000
D. P 872,000
Question no. 13:

PURCHASE COMMITMENT
During 2020, Sonic entered in a noncancellable commitment to purchase 320,000 units of inventory at fixed price of
P5 per unit, delivery to be made in 2021. On December 31, 2020, the purchase price of this inventory item had fallen
to P4.40 per unit. The goods covered by the purchase contract were delivered on January 28, 2021.
A. Zero
B. P 1,600,000
C. P 1,408,000
D. P 192,000
Question no. 14:

DEFERRED TAXES
On December 31, 2020, Sonic’s deferred income tax account has a 2020 ending credit balance of P772,800,
consisting of the following items:
Caused by temporary difference in accounting: Deferred Tax

For gross profit on installment sales 376,000 Credit
For depreciation on propert and equipment 576,000 Credit
For product warranty expense 179,200 Debit
772,800 Credit
A. P 772,800
B. P 952,000
C. P 196,800
D. Zero
Question no. 15:

PRODUCT WARRANTY
Sonic has a one year product warranty on selected items in its product line. The estimated warranty liability on sales
made during 2019, which was outstanding as of December 31, 2019, amounted to P416,000. The warranty costs on
sales made in 2020 are estimated at P1,504,000. Actual warranty costs incurred during the current 2020 fiscal year
are as follows:

Total warranty claims honored 1,408,000
A. Zero
B. P 1,504,000
C. P 96,000
D. P 512,000
Question no. 16:

PREMIUMS
To increase sales, Sonic Company inaugurated a promotional campaign on June 30, 2020. Sonic placed a coupon
redeemable for a premium in each package of product sold. Each premium costs P100. A premium is offered to
customers who send in 5 coupons and a remittance of P30. The distribution cost per premium is P20. Sonic estimated
that only 60% of the coupons issued will be redeemed. For the six months ended December 31, 2020, the following is
available:
Packages of products sold 160,000

Premiums purchased 16,000
Coupons redeemed 64,000
A. P 1,728,000
B. P 1,152,000
C. P 1,600,000
D. P 576,000
Question no. 17:

DUE TO PA-TWO-BOAN COMPANY
A. Zero
B. P 1,600,000
C. P 320,000
D. P 1,280,000
OURSELF)
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pany with recourse.
Substantive Audit Procedures for Current Liabilities
of
B Presentation and disclosure
C. Completeness
. An auditor performs a test to determine whether all merchandise for which the client was billed was received.
The population for this test consists of all
A. Merchandise received
B. Vendor's invoices
C. Canceled checks
D. Receiving reports
. The primary audit test to determine if accounts payable are valued properly is
A. Confirmation of accounts payable
B. Vouching accounts payable to suporting documentation
C. As analytical procedure
D. Verification that accounts payable was reported as a current liability in the statement of financial position
.
Which of the following procedures is least likely to be performed before the statement of financial position date?
.
A. Agree with the assistant because the amount of the purchase order exception was considerably larger than
the receiving report exception
B. Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that
the failure to fill out a report didn’t happen very often.
C. Disagree with the assistant because two problems have an equal risk of loss associated with them.
D. Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with
it.
. When using confirmation to provide evidence about completeness assertion for accounts payable, the
appropriate population most likely is
A. Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable subsidiary ledger.
C. Payees of checks drawn in the month after the year end.
D. Invoices filed in the entity’s open invoice file.
. Which of the following is a substantive test that an auditor is most likely to perform to verify the existence and
valuation of recorded accounts payable?
A. Investigating the open purchase order file to ascertain that pre-numbered purchase orders are used and
accounted for.
B. Receiving the client’s mail, unopened, for a reasonable period of time after year end
to search for unrecorded vendor’s invoices.
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving
reports.
D. Confirming accounts payable balances with known suppliers who have zero balances.
. Only one of the following four statements, which compare confirmation of accounts payable with suppliers and
confirmation of accounts receivable with debtors is false. The false statement is that
A. Confirmation of accounts receivable with debtors is a more widely accepted auditing procedures than is
confirmation of accounts payable with suppliers.
B. Statistical sampling techniques are more widely accepted in the confirmation of accounts payable than in
the confirmation of accounts receivable.
C. As compared with the confirmation of accounts receivable, the confirmation of accounts payable will tend to
emphasize accounts with zero balances at the balance sheet date.
D. It is less likely that the confirmation request sent to the supplier will show the amount owed than that
request sent to the debtor will show the amount due.
. When title to merchandise in transit has passed to the audit client the auditor engaged in the performance of a
purchase cut-off will encounter the greatest difficulty in gaining assurance with respect to the
A. Quantity
B. Quality
C. Price
D. Terms
. Which of the following audit procedures is least likely to detect an unrecorded liability?
A Analysis and recomputation of interest expense.
B. Analysis and recomputation of depreciation expense.
C. Mailing of standard bank confirmation forms.
D. Reading of the minutes of meetings of the board directors.
A. Unpaid bills
B. Shipping records
C. Bills of lading
D. Unmatched Sales Invoices
. Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
A. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the
related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine
whether they are supported by receiving reports.
C. Examining unusual relationships between monthly accounts payable balances and recorded cash
payments.
D. Reconciling vendors’ statement to the file of receiving reports to identify items received just prior to the
balance sheet date.
. In verifying debits to perpetual inventory records of a nonmanufacturing firm, the auditor is most interested in
examining the purchase
A. Journa;
B. Requisitions
C. Orders
D. Invoices
. Which of the following procedures relating to the examination of accounts payable could the auditor delegate
entirely to the client’s employees?
A. Test footings in the accounts payable ledger
B. Reconcile unpaid invoices to vendors statements
C. Prepare a schedule of accounts payable
D. Mail confirmations for selected account balances
A. Existence and occurrence
C. Completeness
. An auditor’s program to audit long term debt should include steps that require
A. Examining bond trust indentures
B. Inspecting the accounts payable subsidiary ledger.
C. Investigating credits to the bond interest income account.
D. Verifying the existence of the bondholders.
. In an audit of bonds payable, an auditor expects the trust indenture to include the
A. Auditee’s debt-to-equity ratio at the time of issuance.
B. Effective yield of the bonds issued.
C. Subscription list.
D. Description of the collateral
. In auditing long-term bonds payable, an auditor most likely will

A. Perform analytical procedures on the bond premium and discount accounts.
B. Examine documentation of assets purchased with bond proceeds or liens
C. Compare interest with the bond payable amount for reasonableness.
D. Confirm the existence of individual bondholders at year-end.
. The audit procedures used to verify accrued liabilities differ from those employed for the verification of accounts
payable because
A. Accrued liabilities usually pertain to services of a continuing nature while accounts payable are the result of
completed transactions
B Accrued liability balances are less material than accounts payable balances.
C. Evidence supporting accrued liabilities in nonexistence while evidence supporting accounts payable is
readily available.
D. Accrued liabilities at year-end will become accounts payable during the following year.
. The auditor is most likely to verify accrued commissions payable in conjunction with the
A. Sales cutoff test
B Verification of contingent liabilities
C. Review of post balance sheet date disbursements
D. Examination of trade accounts payable
ELF)
billed was received.
t of financial position
inancial position date?
The purchase order

order. Also a
to select additional
e audit director should
onsiderably larger than
the receiving clerk that
ated with them.

of loss associated with
payable, the
fy the existence and

orders are used and
ders and receiving
ble with suppliers and
procedures than is
ounts payable than in
unts payable will tend to
t owed than that
the performance of a
the
g documents?
etermine whether the
et date to determine
ecorded cash
ed just prior to the
s most interested in
he auditor delegate
verification of accounts
ayable are the result of
ccounts payable is
Internal Control for Current Liabilities
. Which of the following is a primary function of the purchasing department?

A. Authorizing the acquisition of goods.
B. Ensuring the acquisition of goods of a specific quality.
C. Verifying propriety of goods acquired.
D. Reducing expenditures for goods acquired.
. Jackson, the purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store.
Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby
enabling hisrelative to buy at Judd’s wholesale prices. Jackson was probably able to accomplish this because of
Judd’s poor internalcontrol over
A. Purchase Orders
B. Purchase Requisitions
C. Cash Receipts
D. Perpetual inventory records
. To avoid potential errors and fraud a well-designed internal control in the accounts payable area should include a
separation of which of the following functions?
A. Cash disbursements and invoice verification
B. Invoice verification and merchandise ordering
C. Physical handling of merchandise received and preparation of receiving reports
D. Check signing and cancellation of payment documentation.
. Which of the following internal control procedures is effective in preventing duplicate payment of vendors'
invoices?
A. The invoices should be stamped, perforated or otherwise effectively cancelled before subsmission for
approval of the voucher.
B. Unused vocher forms should be prenumbered and accounted for.
C. Cancelled checks should be sent to person other than the cashier or accounting department personnel.
D. Properly authorized and approved vouchers with appropriate documentation should be the basis for check
preparation.
. Effective controls relevant to purchasing of raw materials should usually include all of the following except
A. Systematic reporting of product changes that will affect raw materials.
B. Determining the need for the raw materials prior to preparing the purchase order.
C Obtaining third-party written quality and quantity reports prior to payment for the raw materials.
D. Obtaining financial approval prior to making a commitment.
. Effective internal control over purchases generally can be achieved in a well-planned organizational structure
with a separate purchasing department that has
A. The responsibility of reviewing purchase orders issued by user departments.
B. The authority to make purchases of requisitioned materials and services.
C. A direct reporting responsibility to the controller of the organization.
D. The ability to prepare payment vouchers based on the information on a vendor's invoice.
. Hansel Corporation uses a voucher register and does not record invoices in a subsidiary ledger. Hansel will
probably benefit most from the additional cost of maintaining an accounts payable subsidiary ledger if
A. Partial payments to vendors are continuously made in the ordinary course of business.
B. It is difficult to reconcile vendors’ monthly statements.
C. Vendors’ requests for confirmation of receivables often go unanswered for several months until paid
Vendors’ requests for confirmation of receivables often go unanswered for several months until paid
D. There are usually invoices in an unmatched invoice file.
. Which of the following most likely would approve the issuance of notes payable?
A. Controller.
B. Payroll.
C. Personnel.
D. Treasurer.
. The primary reason for preparing a reconciliation between interest bearing obligations outstanding during the
year and interest expense presented in the financial statements is to:
A. Evaluate internal control over securities.
B. Determine the validity of prepaid interest expense.
C. Ascertain the reasonableness of imputed interest.
D. Detect unrecorded liabilities.
. A client's procurement system ends with the assumption of a liability and the eventual payment of the liability.
Which of the following best describes the auditors' primary concern with respect to liabilities resulting from the
procurement system?
A. Accounts payable are not materially understated.
B. Authority to incur liabilities is restricted to one designated person.
C. Acquisition of materials is not made from the vendor or one group pf vendors.
D. Commitments for all purchases are made only after established competitive bidding procedures are
followed.
ELF)
a retail hardware store.

COD basis thereby
omplish this because of
le area should include a
ment of vendors'
e subsmission for
partment personnel.
be the basis for check
following except
anizational structure
ledger. Hansel will

iary ledger if
months until paid

tstanding during the
yment of the liability.

es resulting from the
procedures are

Dallas Corp Liabilities

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STRAIGHT PROBLEMS

Due Date Amount From 3/31/2020

Warranty claims honored on 2018 – 2019 sales 252,000

Dividends (Dividends Payable but careful, there are classifications of dividends)

. Estimated warranty payable

. Trade and Other Payables (Other Payables means Non-trade Payables)

. Total noncurrent liabilities

Bonds Payable 5,000,000 Discount on BP = P 5,000,000 x 4% (

rch 31, 2020: ACCRUAL OF INTEREST AT 3/31/2020:

Non-trade or other payable

tober 1, 2014 to March 31, 2020 - amortized

zed months is 54 months (120 months - 66 months)

on BP = P 5,000,000 x 4% (100% - 96%) = P 200,000

sheet date most likely is

Accounts Payable 1,000,000

Contra liability to Bonds Payable

Requires disclosure; not yet a liability

ucher covered income NOTES:

Upon payment on due date, the journal entry made is:

Date Account Names Debit Credit

Inventory of Premium AM/FM Radio 319,600

Actual sales in 2020 of musical instruments and sound equipment 43,200,000

. Estimated liability for warranties

Actual sales in 2020 of musical instruments and sound equipment 43,200,000

Cost per unit of premium – AM/FM Radio, unadjusted 34

. Inventory of AM/FM radio

Inventory of AM/FM radio, January 1, 2020 319,600 given

. Estimated liability for premiums John Jo

d premiums – to attract John John:

Actual warranty cost:

Estimated redemption of coupons (accrual of premium exp.):

Upon redemptions (Actual redemptions):

No. Entry Date Voucher Ref. Description Amount Account Charged

. 12.18.2020 12-203 Auto insurance, 12.15.2020 to

. 12.21.2020 12-212 Merchandise shipped FOB shipping

. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12

. 12.28.2020 12-234 Utilities for December 2020 24,000 Utilities Expense

. 12.28.2020 12-241 Merchandise shipped FOB

. 12.28.2020 12-242 Merchandise shipped FOB shipping

. 01.02.2021 01-001 Legal services, received 12.28.2020 46,000 Legal Expense

. 01.02.2021 01-002 Medical services for employees for

. 01.05.2021 01-003 Merchandise shipped FOB shipping

. 01.05.2021 01-004 Payroll, 12.21.2020 to 01.05.2021 (12

. 01.10.2021 01-007 Manufacturing royalties, December

. 01.10.2021 01-008 Merchandise shipped FOB

. 01.10.2021 01-009 Maintenance services; received,

. 01.14.2021 01-010 Interest on bank loan, 10.10.2020 to

. 01.15.2021 01-011 Manufacturing Equipment installed,

. 01.15.2021 01-012 Dividends declared, 12.15.2020 160,000 Dividends Payable

Accrued liabilities of December 31, 2020 were as follows:

Accrued Payroll 48,000 Related to item 13

02 Insurance Expense (P 24,000 / 12 months 1/2) 1,000

06 Prepaid Subscription 5,000

08 Vouchers Payable 115,000

10 Legal Expenses 46,000

11 Medical Expenses 25,000

18 Properly recorded 27,667

19 Machinery and Equipment 254,000

. 12.18.2020 12-203 Auto insurance, 12.15.2020 to

Requires year-end adjustment:

. 12.21.2020 12-212 Merchandise shipped FOB shipping

. 12.21.2020 12-214 Payroll, 12.7.2020 to 12.21.2020 (12