You were engaged to audit the financial statements of the Philippines Refining Company for the year ended December 31, 2021
You were engaged to audit the financial statements of the Philippines Refining Company for the year ended December 31, 2021 with comparative figures for the year ended December 31, 2020. One of your concern regarding material risk is on their long-term liabilities related to the acquisition of machinery.
Your examination of their books revealed that on December 31, 2019, Philippines Refining Companypurchased machinery having a cash selling price of P85,933.75. The company paid P10,000 down and agreed to finance the remainder by making four equal payments each December 31 at the implicit interest rate of 12%.
The accountant prepared a table of payment below for their long-term financing for you to test for the accuracy of their presentation and payment.
|
Date |
Total Payment |
Interest Payment |
Principal Payment |
Carrying Value |
|
12/31/19 |
10,000.00 |
|
|
75,933.75 |
|
12/31/20 |
28,095.49 |
9,112.05 |
18,983.44 |
56,950.31 |
|
12/31/21 |
25,817.48 |
6,834.04 |
18,983.44 |
37,966.87 |
|
12/31/22 |
23,539.46 |
4,556.02 |
18,983.44 |
18,983.44 |
|
12/31/23 |
21,256.05 |
2,272.61 |
18,983.44 |
0 |
The machine is being
You recompute the depreciation based on their record and it show an annual depreciation of P7,593.38.
Interest expense was traced in the voucher register and check register with the amount the same in the table given by the accountant.
The book of Philippines Refining Companywas still open for the year ended December 31, 2021 report.
As auditor of the company, prepare a working paper if you think the recognition and presentation is not correct and answer the following:
|
1 |
Determine the amount of the annual payments to be made under the financing agreement. |
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