Audit of Liablities

AUDIT OF LIABILITIES
Problem 1
The data below are from the records of ALMANOR INC. on December 31,
2023.
Accounts payable P 680,000

Cash balance, ABC Bank 1,240,000
Cash overdraft with XYZ Bank 80,000
Customers' accounts with credit balances 25,000
Dividends in arrears on preference shares 400,000
Employees' income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Income tax payable 400,000
Notes payable (issued in 2023 maturing in 20
semi- annual installments
beginning on April 1, 2024) 4,000,000
Salaries payable 400,000
The amount to be shown as total current liabilities on Almanor's statement of

financial position at December 31, 2023, is _____________________
Problem 2
Included in DADANG Company's unadjusted trial balance December 31, 2023, are
Accounts payable and Accrued P523,100 and P63,100, respectively. Upon discovered
the following information: expenses verification.
1. On December 28, 2023, the company issued checks to creditors Totaling P115,000.
These checks were released on January 2024.
2. A check dated December 12, 2023, in payment of accounts payable was recorded as
P12,000. Upon examination of the checks returned by the bank, the actual amount was
P21,000.
3. On December 26, 2023, the company purchased on account goods worth P215,000,
but no entry was made in the books. The goods were already included in the year-end
physical count.
4. The following items were erroneously included in accounts payable:
Accrued expenses totaling P37,450
A cash advance from the President of Dadang Company amounting to P350,000

to be used as working capital. This will be repaid within 6 months without
interest.
A debit balance of P87,250 representing advance payment for goods ordered to
be shipped by the supplier on January 12, 2024.
5. Your review of subsequent payments from January 2-15, 2024, revealed that no
accrual was made on December 31, 2023, for the following
Light and water for Nov and Dec. 2023 P 21,200

Telephone bills for Dec. 2023 18,150
Representation expenses for Dec. 2023 11,990
Minor repair of a delivery car on Dec. 26, 2023 3,180
Transportation expense for 2024 2,560
Total 57,080
1. The adjusted balance of Accounts payable at December 31,2023 is ____________

2. The adjusted balance of Accrued expenses on December 31, 2023 is _________
Problem 3
SAIMAA CORP. records its purchases at gross amounts but wishes to change to
recording purchases net of purchase discounts. Discounts on purchases
recorded from January 1, 2023, to December 31, 2023, totaled P80,000. Of this
amount, P8,000 is still available in the accounts payable balance. The balances
in Saimaa's accounts as of and for the year ended December 31, 2023, before
conversion are:
Purchases P 4,000,000
Purchase discounts 32,000
Accounts payable 1,200,000
1. The amount of purchase discounts lost to be recognized is _______________

2. The accounts payable balance should be reduced by ______________________
3. The purchases account should be reduced by ______________________________
4. The entry to record the conversion is____________
Problem 4
Described below are certain transactions of ASHBY COMPANY:
Feb. 2 The company purchased goods from Happy Corp. for P150,000 subject
to cash discount terms of 2/10, n/30. The company records purchases and
accounts payable at net amounts after cash discounts. The invoice was paid
on February 25.
April 1 The company purchased a truck for P120,000 from Broom Motors
Corp., paying P12,000 in cash and signing a one- year, 12% note for the
balance of the purchase price.
May 1 The company borrowed P240,000 from Manila Bank by signing a
P276,000 noninterest-bearing note due one year from May 1.
Aug. 1 The company's board of directors declared a P900,000 cash dividend

that was payable on September 10 to shareholders of record on August 31.
1. Prepare all the journal entries necessary to record the transactions
described above.
2. Assume that Ashby Company's financial year ends on December 31 and

that no adjusting entries relative to the transactions above have been
recorded. Prepare any adjusting journal entries concerning interest that are
necessary to present fair financial statements at December 31.
Problem 5
On December 31, 2023, BAIKAL COMPANY acquired a piece of equipment from

Seller Company by issuing a P 1,200,000 note payable in full on December 31,
2027. Baikal’s credit rating permits it to borrow funds from its several lines of
credit at 10%. The equipment is expected to have a 5-year life and a P 150,000
salvage value. The present value of 1 at 10% for 4 periods is 0.68301.
1. What is the equipment’s book value on December 31,2025?

2. What is the carrying value of the note at December 31, 2025?

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AUDIT OF LIABILITIES

Accounts payable P 680,000

The amount to be shown as total current liabilities on Almanor's statement of

4. The following items were erroneously included in accounts payable:

Accrued expenses totaling P37,450

A cash advance from the President of Dadang Company amounting to P350,000

Light and water for Nov and Dec. 2023 P 21,200

1. The adjusted balance of Accounts payable at December 31,2023 is ____________

Accounts payable 1,200,000

1. The amount of purchase discounts lost to be recognized is _______________

Described below are certain transactions of ASHBY COMPANY:

Aug. 1 The company's board of directors declared a P900,000 cash dividend

2. Assume that Ashby Company's financial year ends on December 31 and

On December 31, 2023, BAIKAL COMPANY acquired a piece of equipment from

1. What is the equipment’s book value on December 31,2025?

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