AP-03: PURCHASE TO PAY AND HIRE TOR

RETIRE PROCESSES – AUDIT OF TRADE

PAYABLES AND OTHER CURRENT
LIABILITIES
PROBLEM 1: (RAP; INTERNAL CONTROLS, TEST OF CONTROLS, SUBSTANTIVE TESTING)

1. You were assigned to audit Cebu Corporation’s (a textile manufacturing company) liability
accounts, which of the following is generally incorrect regarding the usual direction of auditing
liabilities account balances and transactions?
A. Auditing non-trade liabilities such as financial liabilities at amortized cost balances (e.g., bonds
payable) arising from financing cycle, a non-routinary transaction cycle, would seldom involve
compliance testing or test of controls but would rather require direct substantive testing.
B. Auditing trade liabilities arising from purchasing and disbursement cycle, a routinary transaction
cycle, would generally require test of controls first (where risk assessment procedures allow,
that is control risk assessed at below the maximum) before less extensive substantive testing.
C. Auditing trade liabilities arising from purchasing and disb. cycle, a routinary transaction cycle,
would usually require test of controls first before substantive testing where control risk is
assessed at the maximum level.
D. Notwithstanding the result of risk assessment procedure, a non-trade liability such as financial
liability at amortized cost, is usually being audited through direct substantive testing which
usually involve test of detail of transaction.

2. The following are the relevant processes in the purchasing and disbursement cycle in the financial
statements auditor’s perspective, except:
A. Requisitioning.
B. Purchase order processing.
C. Billing.
D. Voucher preparation and recording.

3. The auditor observed, while understanding a client’s requisitioning process, that there is no
systematic and formal policy in place for inventory purchase requests as a result, there is a risk of
either understocking or overstocking inventories, what is the possible implication of this audit
observation to the planned substantive testing?
A. The auditor should focus more on possible understocking of inventories since this might have a
greater impact on existence assertion over inventory balances.
B. Where there is a higher risk of overstocking inventories, the auditor should reduce the extent
of audit procedure in validating year-end valuation assertion on inventories.
C. If higher risk of overstocking inventories is observed, the auditor should plan to gather more
persuasive evidence regarding the year-end valuation assertion on inventories
D. If higher risk of understocking inventories is observed, the auditor should plan to gather more
persuasive evidence regarding the year-end completeness assertion on inventories

4. The auditor observed while understanding of the client’s internal control over the purchasing
function of a client, that there are no appropriate controls in place to prevent purchasing officers
from conniving with suppliers in purchasing merchandise under unfavorable terms. Which financial
statements assertion is mostly affected by this audit planning observation?
A. Existence and obligation assertions on trade payables.
B. Existence and rights assertions on inventories
C. Valuation of trade payables
D. Valuation of inventories

5. Which of the following is incorrect regarding the control objectives in receiving goods purchased?
A. The receiving department anticipates goods to be received based on “blind” or “blank”
purchase orders.
B. The primary control objective in the receiving department is to ensure that goods received are
physically inspected and counted.
C. Another control objective in the receiving department is to ensure that goods received are
what are actually ordered from the suppliers.
D. The manifestation of the performance of control in the receiving department is the
accomplishment of the pre-numbered receiving report.

6. Comparing the documents in the voucher package including suppliers’ sales invoice, purchase
order from purchasing department and receiving reports from receiving department has an
objective of ________ and is the responsibility of _________.

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A. Ensuring that all payments being authorized are for valid purchases; Treasury department.
B. Ensuring that only valid purchases and liabilities are to be requested payment of; Accounting
(Accounts payable) department.
C. Ensuring that only valid purchases and liabilities are to be requested payment of; treasury
department.
D. Ensuring that all valid purchases and liabilities are being requested payment of; purchasing
department.

7. The accounts payable department receives the purchase order to prepare the accounts payable
voucher, this will involve the accomplishment of the following except
A. Comparing the invoice price to the purchase order price.
B. Ensuring that the purchase had been properly authorized.
C. Ensuring that the goods had been received by the party requesting them.
D. Comparing the quantity ordered to the quantity received.
8. For effective internal control, the accounts payable department generally should
A. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
B. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized
employee.
C. Obliterate the quantity ordered on the receiving department copy of the purchase order.
D. Establish the agreement of the vendor’s invoice with the receiving report and purchase order.

9. A client erroneously posted a large purchase twice in a supplier’s subsidiary ledger. Which of the
following internal accounting control measures would be most likely to detect this error in a timely
and efficient manner, assuming that posting to the ledger was done correctly?
A. Footing the purchases journal.
B. Reconciling vendors’ monthly statements with subsidiary payable ledger accounts.
C. Tracing control totals from the purchases journal to the total subsidiary ledger accounts.
D. Sending written quarterly confirmations to all vendors.

10. Which of the following is not an acceptable internal control measure in the disbursement cycle?
A. Agreeing documents in the voucher package to ensure that checks are issued only for valid
liabilities.
B. Use of checks for all disbursements, without exceptions.
C. Cancellation of supporting documents after the cancelled checks are received from the bank
together with the monthly bank statements.
D. Immediate check release immediately by the personnel who signs the check last in the
treasury department.

11. In designing the audit program for Accounts Payables and Purchases, the auditor acknowledges
that there is a higher risk of ___________, thus should design audit procedures that shall focus
on validating ___________ assertion/s?
A. Overstatement; Completeness and Existence/Occurrence
B. Understatement; Existence/Occurrence and Valuation
C. Understatement; Completeness and Valuation
D. Overstatement; Existence/Occurrence and Valuation

12. The auditor wants to obtain evidence in support to the financial statement assertion of
completeness of purchase transactions and the corresponding accounts payable balance. The
auditor would most likely do which of the following substantive test procedure?
A. Trace back journal entries to the purchases journal to the supplier’s sales invoice and shipping
documents and receiving reports.
B. Trace the approved purchases orders to the receiving reports.
C. Send accounts payable confirmation letter to a sample of suppliers who has relatively
significant account balances outstanding as of the balance sheet date.
D. Trace the receiving reports to the supplier sales invoices, then to the entries in the purchases
journal.

13. As part of auditing the company’s purchasing/disbursement cycle, the auditor decided to render a
purchases cut-off by vouching entries several days before and after the balance sheet date,
December 31, from the company’s purchases journal to the source documents, which include the
purchase order, the sales invoice of the supplier and the receiving report. Which of the following is
correct regarding the purchases cut-off procedures?
A. December entries are traced back to the source documents to gather evidence regarding the
existence assertion over payables; January entries are traced back to the source documents to
gather evidence regarding the completeness assertion over payables.
B. December entries are traced back to the source documents to gather evidence regarding the
completeness assertion over payables; January entries are traced back to the source
documents to gather evidence regarding the existence assertion over payables.
C. December entries are traced back to the source documents to gather evidence regarding the
valuation assertion over payables; January entries are traced back to the source documents to
gather evidence regarding the existence assertion over payables.

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D. December and January entries are traced back to the source documents to gather evidence
regarding the valuation assertion over payables.

14. Which of the following procedures would an auditor most likely do to perform search for
unrecorded liabilities and which financial statement assertion is mostly validated by the
procedure?
A. Vouching a sample of entries in the purchases journal just before year end to the unmatched
receiving report file which is consistent in gathering evidence about the existence assertion of
the recorded liabilities.
B. Comparing a sample of purchase orders issued just after year-end with the year-end accounts
payable entries which is consistent in gathering evidence about the completeness of the
recorded liabilities.
C. Scanning the cash disbursements entries recorded just after year-end for indications of
unusual transactions which is consistent in gathering evidence about the existence of the
recorded liabilities.
D. Vouching a sample of cash disbursements recorded just after year-end to receiving reports
and supplier’s invoices which is consistent in gathering evidence about the completeness of
the recorded liabilities.

15. An auditor decided to render circularization/confirmation of trade payable balance as of December

31, 2021 which of the following is appropriate, if the auditor wants to gather evidence to validate
the completeness assertion over trade payables?
A. Send confirmation letters to selected supplier accounts with significant balances as of
December 31, 2021.
B. Send confirmation letters to selected supplier accounts with outstanding balances as of
December 31, 2021 regardless of the amount involved.
C. Send confirmation letters, preferably blank confirmation letters, to suppliers whether with
outstanding balance or not as of December 31, 2021 as long as the client had transacted with
them in the past.
D. Send confirmation letters to selected suppliers account with significant balances as of
December 31, 2020 (prior year).

16. You are auditing the December 31, 2021, accounts payable balance of one of your firm’s divisions.
The division controller’s office has provided you with a schedule listing the creditors and the
amount owed to each at December 31, 2021. Which of the following audit procedures would be
your best choice for determining that no individual account payable has been omitted from the
schedule, and which financial statement assertion would this procedure validate?
A. Send confirmation requests to a randomly selected sample of creditors listed on the schedule;
completeness.
B. Send confirmation requests to creditors that are listed on the schedule but not listed on the
corresponding December 31, 2020 (prior year), schedule; existence.
C. Examine support for selected January 2022 payments to creditors, ascertaining that those
relating to 2021 are not on the schedule; existence.
D. Examine support for selected January 2021 payments to creditors, ascertaining that those
relating to 2021 are on this schedule; completeness.

17. Which of the following audit procedures would most likely be appropriate to gather evidence about
valuation assertion on the estimated liability for warranties?
A. Inquire about the company policy in determining warranty provisions and develop a separate
computation of the warranties expense and estimated warranty liability based on the policy of
the company.
B. Vouch actual warranty costs incurred to supporting documents such as repair and work orders.
C. Vouch goods received from customers to the original sales invoice to determine whether such
goods being returned are covered by the warranty program.
D. Inquire about the company’s policy in determining warranty provisions and determine the
reasonableness of the estimation policy by comparing with industry experience, historical
experience and/or subsequent events.

PROBLEM 2: (SFP PRESENTATION: CURRENT VS. NON-CURRENT LIABILITIES)

The following is an excerpt from Cavite Corporation’s trial balance in relation to your audit of its
financial statements as of and for the period ended December 31, 2021:

Cash in bank, net of a P26,000 bank overdraft (no right of offset) P654,000
Accounts receivable, net of a P44,000 credit bal. in a customers’ account (no right of 217,000
offset)
Accounts payable, net of a P37,500 debit bal. in a suppliers’ account (no right of offset) 873,500
Accrued operating expenses 110,000
Salaries payable – basic pay 236,600
SSS, Philhealth and PAG-IBIG payable 53,100

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Withholding tax payable 36,600
Salaries payable - accrued compensated absences and bonuses 67,800
Provisions/estimated liability for warranties 101,600
Provisions/estimated liability from environmental damages, expected to be settled in 56,000
2022
Provisions/estimated liability from pending litigation cases, expected to be settled in
2023 (at present value and adjusted for risk adjustment premium) 120,000
Current income tax payable 104,500
Output VAT, net of P25,500 Input VAT 43,500
Deferred tax liability, net of a P59,000 deferred tax asset (no right of offset) 33,500
Cash dividends payable 50,000
Share dividends payable 70,000
12% Serial bonds payable, due P50,000 semi-annually every March 1 and September
1. Interests are also payable semi-annually. Final serial payment due on September 1, 500,000
2027.
Accrued interest on serial bonds payable ?
Cash advances from shareholders with an indefinite term 120,000
Financial liability at amortized cost (Notes payable – bank) due 3/31/2022 (See Note 200,000
below)
Financial liability at fair market value 150,000

Audit note: On December 31, 2021, the company entered into an agreement with the bank to
refinance the liability by extending the maturity of the note for another year, that is up to March 31,
2023.

Requirements: Determine the following:

1. Total current liabilities

2. Total non-current liabilities

PROBLEM 3: (SFP PRESENTATION: CURRENT VS. NONCURRENT; PROVISIONS)

You were assigned to review the work done by your audit associate who was assigned to do the wrap-
up procedures in line with the completion of the audit of your client Pangasinan Corp. as of and for the
period ended December 31, 2021. The financial statements of Pangasinan Corp. were approved for
issuance by the BOD on April 15, 2022. Determine the treatment of the following based on the
associate’s audit notes:

Audit notes:
1. The company had a P5M bank loan due on December 31, 2026. A debt covenant requires the
company to maintain a working capital ratio of 2:1 as at the balance sheet date, otherwise the
bank loan becomes due and demandable. As of December 31, 2021, the company has a
working capital ratio of 1.75:1, thus is in violation of the debt covenant. On December 31,
2021, however, the bank agreed to provide the company a waiver (grace period) of up to June
30, 2022, to bring back working capital to the required 2:1. The bank will not be demanding
payment on the loan during the said grace period.

2. The company had another P4M bank loan due March 31, 2022 (currently maturing obligation).
The company having a right to refinance the liability as of December 31, 2021 exercised such
right by issuing a P3M, 4-year bonds payable on March 31, 2022 the proceeds of which was
used directly to pay out the currently maturing obligation. The remaining balance of the bank
loan due was settled from the company’s working capital.

3. P2M bank loan due on Feb. 1, 2022 (currently maturing obligation) was refinanced on Feb. 1,
2022 by entering into a 10%, P2M, 2-year bank loan, the proceeds of which was used to fully
settle the P2M loan. The right to refinance the obligation was obtained on Feb. 1 upon
obtaining the 10%, P2M loan.

4. On December 31, the company is a defendant in a pending lawsuit filed by an employee

claiming a wrongful termination in 2021. The lawyers, in response to a letter of audit inquiry,
stated that it is probable (more likely than not) that the company have to pay damages
between P500,000 to P1,000,000, with P800,000 as the best estimate.

5. On November 1, 2021, the company entered a non-cancellable purchase commitment with

Olongapo Inc. to acquire 10,000 units of a specific product at P100 per unit fixed price. The
purchase commitment is to be executed on May 1, 2022. On December 31, 2021, because of a
significant decline in the demand for Olongapo’s products, the net realizable value of the
product decreased to P70 per unit. A contract termination fee was agreed upon at P400,000.

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6. On November 30, 2021, an explosion occurred at the company’s plant totally damaging the
plant and causing additional damages to adjacent neighbors. The carrying value of the plant
on the company’s books was at P5M. It had a prevailing fair value of P4M prior to the
explosion. No claims had yet been asserted against the company as of the date of
authorization of the financial statements. The management as corroborated by their counsel,
however, believes that it is more likely than not that the company would be responsible for
damages and that P5,000,000 would be a reasonable estimate of its liability. Pangasinan
Corp. had an insurance covering this type of accident. The insurance shall reimburse the
company at 75% of the prevailing fair value of the asset prior to the fire while it has a P2M
deductible/participation clause on damages caused to 3rd parties. The reimbursements are
virtually certain and that the company is no longer principally liable over the portion to be
reimbursed for damages to 3rd parties.

7. On December 2, 2021, the company guaranteed a P2M bank loan of a key officer due on
March 31, 2022. On the due date, the officer failed to settle the obligation due to a financial
distress thus the bank invoked the guarantee and is now demanding payment of the loan from
Pangasinan Corp.

8. On December 30, Pangasinan Corp. acquired a right to operate an oil rig for total cash price of
P10,000,000. Pangasinan Corp. however has an obligation to decommission the said oil rig
after its 5-year estimated useful life. The estimated decommissioning cost to be incurred is at
P2,000,000. The prevailing risk-free interest rate is 6%. The management estimates that a
10% risk adjustment premium is appropriate given the long-term nature of the future asset
retirement obligation.

9. On December 5, 2020, Pangasinan Corp. initiated a lawsuit against La Union Inc. seeking P2
million in damages from patent infringement. The lawyers are under the impression that the
company will more likely than not, win the case with the damages being sought to be awarded
to Pangasinan Corp.

Requirements: Determine the implication of each case on Pangasinan Corp.’s 2021 financial
statements:

Case: A B C D
1. Present P5M bank Present P5M bank Present P2.5M bank Present P3M bank
loan as long-term loan as current loan as current and loan as current and
liability liability P2.5M loan as LT. P2M loan as LT.
2. Present P4M bank Present P4M bank Present P3M bank Present P3M bank
loan as long-term loan as current loan as long-term loan as current and
liability liability and P1M as current. P1M as long-term.
3. Present P2M as Present P2M as Present P1M as Present P1M as
long-term liability. current liability. long-term liability. current liability.
4. Accrue provision Accrue provision Accrue provision Disclose a
from litigation case from litigation case from litigation case contingency at
at P750,000. at P800,000. at P1,000,000 P500,000 to P1M.
5. Accrue provision Accrue provision Accrue provision Accrue provision
from onerous from onerous from onerous from onerous
contract at P300K. contract at P400K. contract at P700K. contract at P350K.
6. Accrue provision Accrue provision Accrue provision Accrue provision
from unasserted from unasserted from unasserted from unasserted
claims at P3M and claims at P2M and claims at P3M and claims at P2M and
recognize recognize recognized recognize
impairment loss on impairment loss on impairment loss on impairment loss on
PPE at P5M PPE at P1.8M PPE at P1.8M PPE at P5M
7. Accrue a provision Disclose the Accrue provision Neither accrue nor
from 3rd party liab. information in the from 3rd party liab. disclose the
guarantee at P2M 2020 notes to FS at P1.5M information
8. Accrued a Accrue a provision Accrue a provision Accrue a provision
provision for asset for asset retirement for asset retirement for asset retirement
retirement at P2M. at P1,494,516 at P2.2M. at P1,643,968.
9. Neither accrue nor Accrue P2,000,000 Disclose P2,000,000 Accrue a gain on
disclose a contingent asset. contingent asset. reimbursement at
contingent asset. P2,000,000.

PROBLEM 4: (GL/SL RECONCILIATION; CASH-DISBURSEMENTS CUT-OFF)

You are auditing Negros Occidental Corporation’s current liability accounts as of December 31, 2021.
The following schedule of liabilities was presented to you by the company’s accountant in relation to
your audit:

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Accounts payable P3,360,000

Accrued operating expense 62,000
Audit note:
a. General Ledger – Subsidiary Ledger Reconciliation
The accountant of Negros Occidental Corporation provided you the following reconciliation
of accounts payable control account and subsidiary ledger account in connection with your
audit of its accounts payable:

Balance per control account (General ledger) P3,360,000

Purchase Invoice for goods received on January 5, 2022 350,000
Purchase invoice on goods still in transit as of
December 31, 2021. Term FOB supplier’s warehouse. 300,000
Cost of goods received on December 29, 2021. Purchase
invoice documents received only on January, 2022 (150,000)
Payments to supplier in which the check is dated January 2, 2022 and
were released on December 30, 2021 (220,000)
Payments to supplier in which check is dated December 30, 2021 and
were released on January 2, 2022 340,000
Payments to supplier in which check is dated December 30, 2021 and
(200,000)
were released on the same date.
Purchase returns (30,000)
Debit balance on a suppliers’ account 80,000
Balance per subsidiary ledgers P3,830,000

b. Cash Disbursements Cut-Off (Search for Unrecorded Liabilities)

The following is a summary of entries before and after the balance sheet date on the cash
disbursement journal of Negros Occidental Corporation:

Entry date Voucher Description Amount Account Charged

Reference (Debited)
Dec. 18, 2021 12 - 200 Lawyers’ retainers fee for Dec. P35,000 Professional fees
Dec. 26, 2021 12 - 203 Fire insurance, 12/1/2021 to 48,000 Prepaid insurance
11/30/2022
Dec. 28, 2021 12 – 215 Fee for building maintenance for 24,000 Repairs and maintenance
the month of December expense
Jan. 3, 2022 1–1 CPA’s retainer’s fee for Dec. 46,000 Professional fees
Jan. 4, 2022 12 – 214 December electricity bill 62,000 Accrued Operating
Expense
Jan. 5, 2022 1–2 Medical services for employees 52,000 Medical expense
in 2021
Jan. 6, 2022 1–3 Payroll 12/22/2021 to 1/6/2022 84,000 Salaries and wages
(12 work days, 5 days in Jan.)
Jan. 12, 2022 1–4 Royalties in December 39,000 Royalty expense
Jan. 14, 2022 1–5 Repairs services on factory 19,000 Repairs and maintenance
equipment in January expense

Required:
1. What is the adjusted balance of the accounts payable account?

2. What is the correct accrued expenses as of December 31?

PROBLEM 5: (PROVISION: ASSURANCE-TYPE WARRANTIES)

During 2020, Bulacan Company introduced a two-year warranty program on its main product. The
warranty program provides the customer an assurance that the product will function as
intended (assurance-type warranties) because it complies with agreed-upon specifications.
The company does not normally sell warranty services on its products and the customer has
no option to purchase the warranty service separately. Best estimates based on industry practice,
indicated that the 40% of unit sales will be returned in the year of sale and an additional 30% of unit
sales will be returned the next year following the year of sale. The company further estimates that P120
in labor and materials costs shall be spent on each unit covered by the warranty program.

Sales and actual warranty expenditures for 2020 and 2021 were as follows:
Year Sales in Php Sales in Units Actual warranty costs
2020 P7,200,000 6,000 P151,200
2021 9,750,000 7,500 409,500

Requirements:
1. How much is the warranty expense and estimated warranties liability bal. in 2021?

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2. Assuming that: (a) warranty program is only for 1-year; (b) best estimates indicate that
70% of unit sales shall be returned; and (c) from the amount paid in 2021, P302,800 was for
2020 product warranties, what is the warranties expense and estimated warranties liability
bal. in 2021?

3. Assuming that: (a) warranty program is only for 1-year, and (b) best estimates indicate that
70% of unit sales shall be returned for warranty program, what is the warranties expense
and estimated warranties liability bal. in 2021?

PROBLEM 6: (SERVICE -TYPE WARRANTIES)

Batangas Inc. is a manufacturer and distributor of a specialized environmentally friendly air-

conditioning system for commercial use. It sells its products with a two-year warranty for repairs and
maintenance. The warranty service is in addition to the assurance that the product complies
with agreed-upon specifications (service-type warranties). For the year-ended December 31,
2021 the company reported total sales at P40,000,000. Cost of sales was at P9,500,000 while cost
related to the warranty services amounted to P800,000. Your audit investigation revealed that each
air-conditioning unit could be sold without the warranty service at P45,000 while the two-year
warranty service contract can be sold separately at P5,000.

Requirements:
1. What is the correct revenue from sales of air-conditioning units to be reported in the 2021
SCI?

2. What is the correct revenue from warranty services to be reported in the 2021 SCI and the
correct unearned revenue in the 2021 SFP (assume sales were made evenly throughout the
year)?

3. What is the correct unearned revenue from warranty services to be reported in the 2021 SFP
(assume all sales were made at the beginning of 2021)?

PROBLEM 7: (UNEARNED INCOME FROM CUSTOMER AWARD CREDITS/POINTS)

Rizal Inc. provides one customer loyalty award credit/point for every P100 sale of its product. Each
loyalty point is equivalent to P5 which can be used to further purchase Rizal Inc.’s products. For the
year ended, December 31, 2021 the company reported total sales at P25M.

Your examination revealed that the company does not recognize the award credit separately. Goods
purchased by customers through their exercise of customer loyalty points are simply recognized as
promotional expense at the cost of products redeemed. Further investigation revealed that 30% of the
customer loyalty credits/points awarded during the year has already been exercised by the end of the
year.

Requirements:
1. Assuming that each customer loyalty award credit/point has a fair market value of P4 per
point, what is the balance of the unearned income from customer award credits/points as of
Dec. 31, 2021?

2. Assuming that the fair market value of the customer loyalty award credit/point cannot be
reasonably ascertained, and the entity estimates that 40% of the award credits will
ultimately expire, what is the balance of the unearned income from customer loyalty award
credits/points as of Dec. 31, 2021?

PROBLEM 8: (COMPENSATED ABSENCES; PROFIT-SHARING BONUS)

You were assigned to audit accrued expenses of your client, Iloilo Inc.’s for the period ended
December 31, 2021. Accrued salaries per the unadjusted trial balance was at P3,441,867. The amount
includes:
Accrued salaries for compensated absences 2,632,500
Accrued salaries for profit-sharing bonus 809,367

Audit notes:
A. The accrued salaries for compensated absences were the accrued liability as of December 31,
2020. The company is yet to make the necessary adjustment for the current year.

The company has 100 employees (assumed to have been employed throughout 2020 and
2021). The company provides its employees 15 days paid sick leave and 15 days paid

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vacation leaves for every operating year. The company’s policy on sick leave and vacation
leave allows each employee to carry over accumulated leaves for the current period over the
next two years only, thereafter it shall expire. The 2020 balance comprise of 1,050 days from
2019 and 3,000 from 2020.

By the end of 2021, 3,300 vacation and sick leave days were exercised by the employees. 960
of these leaves were from 2019. Salary rates in 2021 increased by 20%.

B. Accrued salaries for profit-sharing bonus is 10% of the net income after bonus and after 30%
tax. Income used to compute for the bonus per books was before any adjustments from audit
note A.

Requirements: (1) Accrued salaries for compensated absences. (2) Accrued salaries for profit-sharing
bonus.

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