MIMIYUHH, Inc.

, a nonpublic enterprise, is negotiating a loan for expansion purposes and the

bank requires audited financial statements. Before closing the accounting records for the
year ended December 31, 2019, MIMIYUHH's controller prepared the following
comparative financial statements for 2019 and 2018:

MIMIYUHH, Inc.
Balance Sheets
December 31, 2019 and 2018

2019 2018
Cash ...................................... P 550,000 P 300,000
Investment securities (reported at market;
cost, P142,000) ......................... 156,000 0
Accounts receivable ....................... 974,000 784,000
Allowance for doubtful accounts ........... (100,000) (64,000)
Inventories ............................... 850,000 770,000
Property and equipment .................... 620,000 434,000
Accumulated depreciation .................. (300,000) (242,000)
Total assets ............................ P2,750,000 P1,982,000

Accounts payable .......................... P 180,000 P 154,000

Accrued expenses .......................... 160,000 40,000
Note payable, 5-year ...................... 600,000 600,000
Estimated contingent liability ............ 200,000 0
Common stock, P10 par ..................... 420,000 420,000
Additional paid-in capital ................ 260,000 260,000
Retained earnings ......................... 930,000 508,000
Total liabilities & owners' equity ...... P2,750,000 P1,982,000

MIMIYUHH, Inc.
Income Statements
For the Years Ended December 31, 2019 and 2018

2019 2018
Net sales ................................. P3,160,000 P2,500,000
Operating expenses:
Cost of sales ............................. P1,510,000 P1,380,000
Selling & administrative .................. 984,000 730,000
Depreciation .............................. 58,000 36,000
Estimated loss from lawsuit ............... 200,000 0
P2,752,000 P2,146,000
Operating income .......................... P 408,000 P 354,000
Unrealized gain on investment securities .. 14,000 0
Net income ................................ P 422,000 P 354,000
During the audit, the following additional information was obtained:

Make adjusting journal entries

(a) The investment portfolio consists of investments in trading securities

with a total market value of P156,000 at December 31, 2019. The
securities were purchased February 3, 2019, at a cost of P142,000.

No Journal Entry / Ignore

(b) As a result of errors in physical count, inventories were overstated by

P30,000 at December 31, 2019.

Debit Cost of Goods Sold 30,000

Credit Inventory 30,000

Ending Inventory is Overstated

Cogs – Lower / Understated
If COGS is Understated , Gross Profit will be Overstated

(c) On January 2, 2019, the cost of equipment purchased for P80,000 was
mistakenly charged to repairs and maintenance. MIMIYUHH depreciates
this type of equipment over a 5-year life using the straight-line method,
with no residual or salvage value.

(1)
Debit Property, Plant and Equipment 80,000
Credit Selling and Administrative Expense/Repairs and Maintenance
80,000

(2) (Depreciation)
Debit Depreciation Expense ( 80,000 X 1/5 ) 16,000
Credit Accumulated Depreciation – Equipment 16,000

(d) MIMIYUHH was named as a defendant in a lawsuit in October 2019.

MIMIYUHH's counsel is of the opinion that MIMIYUHH has a good
defense and does not anticipate any impairment of MIMIYUHH's assets
or that any significant liability will be incurred. However, MIMIYUHH's
counsel admits that loss of the suit is "possible." MIMIYUHH's
management wished to be conservative and established a loss
contingency of P200,000 at December 31, 2019.

When do we recognize contingent liabilities in the financial statements ?

= “ Probable “
 Debit : Estimated Contingent Liability 200,000
Credit : Estimated Loss from Lawsuit 200,000

(e) P100,000 of 5-year notes payable will mature September 30, 2020. In
view of MIMIYUHH's plans for expansion, management is seriously
considering refinancing the notes when they become due.

Debit – Long-Notes Payable 100,000

Credit : Notes Payable – Current Portion 100,000

Refinancing : When do we recognize the loan as non-current liability ?

- If there entity has the discretion to roll over
- Or , Refinancing agreement occurred before Balance Sheet Date

(1) Prepare a properly classified balance sheet for MIMIYUHH, Inc., as of

December 31, 2019. (Income tax considerations should be ignored.)
(2) Identify the events and other information that should be disclosed in
the notes to MIMIYUHH's financial statements. (Do not prepare the
notes.)