During the course of your December 31, 2021 audit of BeCareful Company’s liabilities, you have noted the following balances: Current liabilities: Accounts payable P 250,000 Provisions 100,000 Warranty liability NIL Noncurrent liabilities 10% Bonds payable P1,000,000 9% Convertible bonds 487,566 8% Notes payable 320,000 After performing related audit procedures for liabilities, the audit notes were as follows: The inspection of the purchase journal for cut-off procedures in relation to company purchases from December 15, 2021 until January 15, 2022 revealed the following information: Receiving report no. Amount Invoice date Shipment Date Shipment terms 5631 P5,500 12/14/2021 12/15/2021 FOB supplier 5632 6,000 12/17/2021 12/20/2021 FOB supplier 5633 7,900 12/22/2021 12/24/2021 FOB Buyer 5635 8,900 12/30/2021 12/30/2021 FOB Buyer 5636 10,000 12/31/2021 12/31/2021 FOB supplier 5637 8,000 12/29/2021 1/2/2022 FOB supplier 5638 9,500 12/31/2021 12/31/2021 FOB Buyer 5639 10,500 1/2/2022 1/5/2022 FOB Buyer 5640 11,000 1/5/2022 1/10/2022 FOB supplier 5641 12,000 1/8/2022 1/11/2022 FOB supplier 5642 15,000 1/12/2022 1/15/2022 FOB Buyer The inventory count procedures were done in December 31, 2021 and the cut-off documents revealed that the last receiving report used and recorded for the current year by the company is RR number 5635. Receiving report number 5634 is for a shipment made on December 27, 2021. The related invoice amounting to P12,500, was misplaced by the accounts payable clerk and was recovered only on January 5, 2022 and was recorded thereafter. B. Provisions The review of the board minutes indicated that there was a pending lawsuit from an employee against BeCareful company for the damages suffered by the employee from falling debris in the company’s building. The confirmation letter from its legal counsel revealed that they believe that the company will lose the lawsuit and will pay damages between P100,000 to P500,000. On December 31, 2021, the employee has offered to settle the lawsuit out of court for P400,000. BeCareful company is not likely to agree with the settlement. The company recorded P100,000 as its provisions for damages. C. Warranty Liabilities The company has a two-year warranty on its product and uses the percent of sales to estimate its warranty expense. This rate is 5% of sales. During the year, the rate increased to 9% of its total net sales. Based on past experience 80% of the warranties are claimed during the year of sale and the remaining during the year after sale. You have obtained the following information in relation to your audit: 2020 2021 2022 Sales P30,000,000 P32,000,000 P31,750,000 Actual warranty costs paid 1,200,000 1,550,000 2,580,000 The company records warranty expense based on actual costs incurred. No Accruals for warranties are being made. D. Bonds Payable BeCareful issued a 5-year 10% Bond on December 31, 2018 for P927,904. The bonds were initially issued to yield 12%. The interest is payable every January 2, starting 2020. BeCareful incurred bond issue costs of P33,421. The effective rate of the bonds is 13% after the bond issue costs. The company recorded the transaction by debiting cash for the amount of proceeds, debiting bonds payable at face value and the difference to interest expense. The bond issue costs were recorded by the accountant as a debit to bond issue expense and credit to cash. Payment of interest during the year is debited to interest expense and credited to cash. E. Convertible Bonds The company issued 500 of its 3-year, 9% P1,000 face value convertible bonds on January 1, 2021. The bonds were issued to yield 10%, while interest is payable annually every January 1. The market interest rate of similar bonds without the conversion privilege is 12%. Each P1000 bond may be converted into four, P10 par value ordinary shares of the company. The fair market value of the ordinary shares of the company as of this date is P15. The bond holders may exercise the right anytime until maturity. BeCareful recorded the transaction by debiting cash and bonds payable at the amount of consideration received. F. Notes Payable The notes payable is for a purchase of land on April 15, 2019. The note is payable after 3-years, the interest is payable annually every April 15. BeCareful was given the right to refinance the note for 13 months from date of refinancing. On November 14, 2021, the company and the seller agreed to refinance the note by replacing the old note with a new note. G. Adjusting Journal Entries The company has yet to make adjusting journal entries as of year-end. What is the correct amount of accounts payable to be presented in the statement of financial position?
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
During the course of your December 31, 2021 audit of BeCareful Company’s liabilities, you have noted the following balances:
Current liabilities:
Accounts payable P 250,000
Provisions 100,000
Warranty liability NIL
Noncurrent liabilities
10% Bonds payable P1,000,000
9% Convertible bonds 487,566
8% Notes payable 320,000
After performing related
The inspection of the purchase journal for cut-off procedures in relation to company purchases from December 15, 2021 until January 15, 2022 revealed the following information:
|
Receiving report no. |
Amount |
Invoice date |
Shipment Date |
Shipment terms |
|
5631 |
P5,500 |
12/14/2021 |
12/15/2021 |
FOB supplier |
|
5632 |
6,000 |
12/17/2021 |
12/20/2021 |
FOB supplier |
|
5633 |
7,900 |
12/22/2021 |
12/24/2021 |
FOB Buyer |
|
5635 |
8,900 |
12/30/2021 |
12/30/2021 |
FOB Buyer |
|
5636 |
10,000 |
12/31/2021 |
12/31/2021 |
FOB supplier |
|
5637 |
8,000 |
12/29/2021 |
1/2/2022 |
FOB supplier |
|
5638 |
9,500 |
12/31/2021 |
12/31/2021 |
FOB Buyer |
|
5639 |
10,500 |
1/2/2022 |
1/5/2022 |
FOB Buyer |
|
5640 |
11,000 |
1/5/2022 |
1/10/2022 |
FOB supplier |
|
5641 |
12,000 |
1/8/2022 |
1/11/2022 |
FOB supplier |
|
5642 |
15,000 |
1/12/2022 |
1/15/2022 |
FOB Buyer |
The inventory count procedures were done in December 31, 2021 and the cut-off documents revealed that the last receiving report used and recorded for the current year by the company is RR number 5635.
Receiving report number 5634 is for a shipment made on December 27, 2021. The related invoice amounting to P12,500, was misplaced by the accounts payable clerk and was recovered only on January 5, 2022 and was recorded thereafter.
B. Provisions
The review of the board minutes indicated that there was a pending lawsuit from an employee against BeCareful company for the damages suffered by the employee from falling debris in the company’s building. The confirmation letter from its legal counsel revealed that they believe that the company will lose the lawsuit and will pay damages between P100,000 to P500,000. On December 31, 2021, the employee has offered to settle the lawsuit out of court for P400,000. BeCareful company is not likely to agree with the settlement. The company recorded P100,000 as its provisions for damages.
C. Warranty Liabilities
The company has a two-year warranty on its product and uses the percent of sales to estimate its warranty expense. This rate is 5% of sales. During the year, the rate increased to 9% of its total net sales. Based on past experience 80% of the warranties are claimed during the year of sale and the remaining during the year after sale. You have obtained the following information in relation to your audit:
|
|
2020 |
2021 |
2022 |
|
Sales |
P30,000,000 |
P32,000,000 |
P31,750,000 |
|
Actual warranty costs paid |
1,200,000 |
1,550,000 |
2,580,000 |
The company records warranty expense based on actual costs incurred. No Accruals for warranties are being made.
D. Bonds Payable
BeCareful issued a 5-year 10% Bond on December 31, 2018 for P927,904. The bonds were initially issued to yield 12%. The interest is payable every January 2, starting 2020. BeCareful incurred bond issue costs of P33,421. The effective rate of the bonds is 13% after the bond issue costs. The company recorded the transaction by debiting cash for the amount of proceeds, debiting bonds payable at face value and the difference to interest expense. The bond issue costs were recorded by the accountant as a debit to bond issue expense and credit to cash. Payment of interest during the year is debited to interest expense and credited to cash.
E. Convertible Bonds
The company issued 500 of its 3-year, 9% P1,000 face
F. Notes Payable
The notes payable is for a purchase of land on April 15, 2019. The note is payable after 3-years, the interest is payable annually every April 15. BeCareful was given the right to refinance the note for 13 months from date of refinancing. On November 14, 2021, the company and the seller agreed to refinance the note by replacing the old note with a new note.
G.
The company has yet to make adjusting journal entries as of year-end.
What is the correct amount of accounts payable to be presented in the
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