How much is the balance of the note payable as of December 31, 2021 arising from the purchase of machinery?
How much is the balance of the note payable as of December 31, 2021 arising from the purchase of machinery?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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How much is the balance of the note payable as of December 31, 2021 arising from the purchase of machinery?
Transcribed Image Text:For the 2021 audit of the financial statements, you are tasked to audit EMPLEO
Corporation's liabilities. The following information relates to the obligations of
EMPLEO Corporation as of December 31, 2021:
• Accounts payable for goods and services purchased on open account amounted
to P350,000 on December 31, 2021. This amount was gross of a supplier's debit
balance of P30,000. On the other hand, the testing of the accounts receivable
account revealed that a customer's credit balance of P50,000 was netted against
the balance of the accounts receivable.
• At December 31, 2021, EMPLEO declared a cash dividend at PO.50 per share on
its P10 par value ordinary share capital, payable at January 12, 2022, to
shareholders as of December 31, 2022. At December 31, 2021, EMPLEO had
1,000,0000 issued ordinary shares and 800,000 oustanding ordinary shares.
• The company financed its receivables, dated November 1, 2021, by discounting
its 180-day P400,000 accounts receivable to a bank on a with recourse basis at
8% on December 31, 2021.
• On December 31, 2021, the company purchased a machinery. The purchase was
done on a deferred payment basis. The payment terms require a P100,000 down
payment and the balance with a note payable in four equal annual installments of
P250,000 every December 31 starting 2022. The interest rate for similar notes is
10%.
• The review of minutes and confirmation letter obtained from the legal counsel of
the company revealed the following information:
o EMPLEO has been named a liable party for toxic waste cleanup on its land,
and must pay an as-yet undetermined amount for environmental remediation
activities.
An adjoining land owner, Clear Toothpaste Company, sold its property
because of possible toxic contamination of the water supply and resulting
potential adverse public reaction towards its product. Clear Toothpaste sued
EMPLEO for damages. There is reasonable possibility that Clear Toothpaste
will prevail and be awarded between P250,000 and P600,000.
Transcribed Image Text:o EMPLEO is also the defendant of a lawsuit on an incident involving an
accidental crash by its company car to another vehicle. In your inspection of
the letter obtained from its legal counsel, they believe that the company
would be liable to pay damages amounting to P300,000, but it is also possible
that it will pay up to P500,000.
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