Question 1: What is the correct amount of accounts payable to be presented in the statement of financial position? Question 2: The amount of contingent liability to be disclosed relating to the lawsuit from the employees is? Question 3: How much is the correct balance of the warranty liabilities account as of December 31, 2021?
Question 1: What is the correct amount of accounts payable to be presented in the statement of financial position? Question 2: The amount of contingent liability to be disclosed relating to the lawsuit from the employees is? Question 3: How much is the correct balance of the warranty liabilities account as of December 31, 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Question 1: What is the correct amount of accounts payable to be presented in the
Question 2: The amount of
Question 3: How much is the correct balance of the warranty liabilities account as of December 31, 2021?
Question 4: The
Question 5: How much is the carrying value of the 10% bonds payable at the end of December 31, 2021?
![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:
A. Accounts payable
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:](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ce0b43f-73f6-4b81-b893-10a09cd1628a%2F61eed5c9-2941-41c6-9051-3a1cd3ee1ae9%2Fc6k9vpc_processed.png&w=3840&q=75)
Transcribed Image Text: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:
A. Accounts payable
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:
![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
P30,000,000
P32,000,000
P31,750,000
Sales
Actual warranty costs
1,200,000
1,550,000
2,580,000
paid](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ce0b43f-73f6-4b81-b893-10a09cd1628a%2F61eed5c9-2941-41c6-9051-3a1cd3ee1ae9%2Fblfw2pn_processed.png&w=3840&q=75)
Transcribed Image Text: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
P30,000,000
P32,000,000
P31,750,000
Sales
Actual warranty costs
1,200,000
1,550,000
2,580,000
paid
![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 refınance 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ce0b43f-73f6-4b81-b893-10a09cd1628a%2F61eed5c9-2941-41c6-9051-3a1cd3ee1ae9%2Fveb0tq_processed.png&w=3840&q=75)
Transcribed Image Text: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 refınance 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.
![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
FOB Buyer
12/31/2021
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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ce0b43f-73f6-4b81-b893-10a09cd1628a%2F61eed5c9-2941-41c6-9051-3a1cd3ee1ae9%2F49bc7mi_processed.png&w=3840&q=75)
Transcribed Image Text: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
FOB Buyer
12/31/2021
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
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