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AUAUDIT OF LIABILITIESPROBLEM 7In conjunction with your firm’s examination of the financial statements of BRAVO, INC. as of December 31, 2020, you obtained the information from the company’s voucher register shown in the working paper below:Item No.Entry DateVoucher Ref.Description Amount Account Ch...

Description

AU AUDIT OF LIABILITIES PROBLEM 7 In conjunction with your firm’s examination of the financial statements of BRAVO, INC. as of December 31, 2020, you obtained the information from the company’s voucher register shown in the working paper below: Item No. 1

Entry Date 12/18/20

Voucher Ref. 12-202

2 3 4

12/18/20 12/21/20 12/21/20

12-204 12-206 12-214

5

12/21/20

12-219

6

12/26/20

12-221

7 8

12/28/20 12/28/20

12-230 12-234

9

12/28/20

12-243

10

01/02/21

01-001

11

01/05/21

01-002

12

01/05/21

01-003

13

01/05/21

01-004

14

01/10/21

01-005

15 16

01/12/21 01/12/21

01-006 01-007

17 18 19

01/13/21 01/14/21 01/15/21

01-008 01-009 01-010

20

01/15/21

01-011

Description

Amount

Account Charged

Supplies, shipped FOB destination 12/15/20; received 12/17/20 Auto insurance, 12/15/20 -12/15/21 Repairs services; received 12/20/20 Merchandise, shipped FOB shipping Point, 12/20/20; received 12/24/20 Payroll, 12/07/20 to 12/21/20 (12 working days) Subscription to Tax Reporting Services for 2021 Utilities for December, 2020 Merchandise, shipped FOB Destination, 12/24/20; received 01/02/21 Merchandise, shipped FOB Destination, 12/26/20; received 12/29/20 Legal services, received 12/28/20

P20,000

Supplies on hand

Medical services for employees for December, 2020 Merchandise, shipped FOB shipping Point, 12/29/20; received 01/04/21 Payroll, 12/21/20 to 01/05/21 (12 working days in total, 4 working Days in January, 2021) Merchandise, shipped FOB shipping Point, 01/02/21; received 01/05/21 Manufacturing royalties December, 2020 Merchandise, shipped FOB Destination, 01/03/21; received 01/10/21 Maintenance services; received, 01/09/21 Interest on bank loan, 10/12/20 To 01/12/21 Manufacturing equipment Installed on 12/29/20 Dividends declared, 12/15/20

24,000 19,000 17,000

Prepaid Insurance Repairs & Maintenance Inventory

69,000

Salaries and wages

5,000

Dues and Subscriptions

29,000 111,500 84,000 46,000 25,000

Utilities Expense Inventory Inventory Legal & Professional Fees Expense Medical expenses

55,000

Inventory

72,000

Salaries and wages

64,000

Inventory

39,000 38,000

Manufacturing cost Inventory

9,000 30,000 254,000 160,000

Repairs & Maintenance Interest expense Machinery & Equipment Dividends Payable

Accrued liabilities as of December 31,2020 were as follows: Accrued payroll P 48,000 Accrued interest payable 26,667 Dividends payable 160,000 Accrued royalties payable 39,000 The accrued payroll, accrued interest payable, and accrued royalties payable accounts were reversed on January 1, 2021. REQUIRED: Review the given data above and prepare journal entries to adjust the accounts on December 31,2020. Assume that the company follows FOB terms for recording inventory purchases.

SOLUTIONS: 1. NO ADJUSTMENT (assertions: completeness; rights and obligations) DR: SUPPLIES ON HAND; CR: ACCTS PAYABLE Not correct entry: 2. Prepaid Insurance 24, 000 Assertions: valuations and allocations Accounts Payable 24, 000 24, 000/ 12 months/ half = 1, 000 INSURANCE EXPENSE 1, 000 PREPAID INSURANCE (24, 000 X 0.5/12) 1, 000 3. NO ADJUSTMENT DR: REPAIRS & MAINTENACE EXPENSE; CR: ACCTS PAYABLE(assertions: rights and obligations) 4. NO ADJUSTMENT DR: INVENTORY; CR: ACCTS PAYABLE (inventory method: Perpetual inventory method) (assertions: existence and occurrence) 5. NO ADJUSTMENT DR: SALARIES AND WAGES; CR: ACCTS PAYABLE (assertions: rights and obligations) 6. Dues and Subscriptions Expense 5, 000 Accounts Payable 5, 000 Not correct entry: Assertions: rights and obligations, existence PREPAID DUES AND SUBSCRIPTIONS 5, 000 of a particular accts. DUES AND SUBSCRIPTIONS EXPENSE 5, 000 Already recognized 2020 7. NO ADJUSTMENT DR: UTILITIES EXPENSE; CR: ACCTS PAYABLE 8. Inventory 11, 500 Not correct entry: Assertions: rights and obligations, existence Accounts Payable 11, 500 of a particular accts. ACCOUNTS PAYABLE 11, 500 Wala kala bot dec. 31 (cut off) INVENTORY 11, 500 9. NO ADJUSTMENTS DR: INVENTORY; CR: ACCTS PAYABLE (assertions: existence; rights and obligations) 10. Legal & Professional Fees Expense 46, 000 Not correct entry: Accounts Payable 46, 000 Principles that are being violated: matching LEGAL AND PROFESSIONAL FEES EXPENSE 46, 000 principles (GAAP) Assertions: rights and obligations, existence of a ACCOUNTS PAYABLE 46, 000 particular accts. 25, 000 11. Merchandise Expense Received 2020 so isulod siya sa 202 Accounts Payable 25, 000 Not correct entry: MEDICAL EXPENSES 25, 000 Principles that are being violated: matching ACCOUNTS PAYABLE 25, 000 principles (GAAP) 12. Inventory 55, 000 Pasudlon sa 2020 (basta muna) haha Accounts Payable 55, 000 Not correct entry: INVENTORY 55, 000 Principles that are being violated: matching ACCOUNTS PAYABLE 55, 000 principles (GAAP) 13. NO ADJUSTMENT DR: SALARIES AND WAGES; CR: ACCTS PAYABLE? d ko sure Assertions: existence and occurrence Pasudlon sa 2020 kay FOB SP sang 29 Kung tunga: 2020: Salaries & Wages 48, 000 Accrued Payroll 48, 000 2021: Accounts Payable 24, 000 Salaries & Wages 24, 000 14. NO ADJUSTMENT DR: INVENTORY; CR: ACCTS PAYABLE (iya na ka 2021) 15. NO ADJUSTMENT DR: MANUFACTURING COST EXPENSE; CR: ACCRUED ROYALTIES PAYABLE (already recorded) 16. NO ADJUSTMENT DR: INVENTORY; CR: ACCTS PAYABLE 17. NO ADJUSTMENT DR: REPAIRS AND MAINTENACE; CR: ACCTS PAYABLE 18. Interest Expense 30, 000 Accounts Payable ACCOUNTS PAYABLE INTEREST EXPENSE

30, 000 3, 333 3, 333

Ndi ko di sure hahahahahha. La ko kamati mayo sorry. Patawadmga lodi hahaha

19. Machinery and Equipment 254, 000 Accounts Payable MACHINERY AND EQUIPMENT 254, 000 ACCOUNTS PAYABLE 20. NO ADJUSTMENT (already recorded in accrued liabilities)

Not correct entry: Pasudlon sa 2020

254, 000 254, 000

PROBLEM 8 FEEL NA FEEL, INC. has been producing quality reusable adult diapers for more than two decades. The company’s fiscal year runs from April 1 to March 31. The following information relates to the obligations of Feel Na Feel as of March 31, 2020. BONDS PAYABLE Feel Na Feel issued P10,000,000 of 10% bonds on July 1, 2018. The prevailing market rate of interest for these bonds was 12% on the date issue. The bonds will mature on July 1, 2028. Interest is paid semiannually on July 1 and January 1. Feel Na Feel uses the effective interest rate method to amortize bond premium or discount NOTES PAYABLE Feel Na Feel has signed several long-term notes with financial institutions. The maturities of these notes are given in the schedule below. The total unpaid interest for all of these notes amounts to P600,000 on March 31, 2020 Due Date April 1, 2020 July 1, 2020 October 1, 2020 January 1, 2021 April 1, 2022 – March 31, 2023 April 1, 2023 – March 31, 2024 April 1, 2024 – March 31, 2025 April 1, 2025 – March 31, 2026

P

P

Amount Due 400,000 600,000 300,000 300,000 1,200.000 1,000,000 800,000 1,000,000 7,000,000

ESTIMATED WARRANTIES Feel Na Feel has a one-year product warranty on some selected items in its product line. The estimated warranty liability on sales made during the 2018-2019 fiscal year and still outstanding as of March 31, 2019 amounted to P180,000. The warranty cost on sales made from April 1 2019, through March 31,2020, are estimated as P520,000. The actual warranty cost incurred during the current 2019-2020 fiscal tear are as follows: Warranty claims honored on 2018-2019 sales Warranty claims honored on 2019-2020 sales Total warranty claims honored

P P

180,000 178,000 358,000

OTHER INFORMATION 1. TRADE PAYABLES Accounts payable for supplies, goods and services purchased on open account amount to P740,000 as March 31, 2020 2. PAYROLL RELATED ITEMS Accrued Salaries and wages Withholding taxes payable Other payroll deductions

P

P

300,000 94,000 10,000 404,000

3. MISCELLANEOUS ACCRUALS Other accruals not separately classified amount to P150,000 as of March 31, 2020

4. DIVIDENDS On March 15, 2020, Feel Na Feel’s board of directors declared a cash dividend of P0.20 per common share and a 10% common stock dividend. Both dividends were to be distributed on April 12, 2020, to the common stockholders of record at the close of business on March 31, 2020. Data regarding Feel Na Feel common stock are as follows: Par Value Number of shares issued and outstanding Market Values of Common Stock: March 15, 2020 March 31, 2020 April 12, 2020

P

5.00 per share 6,000,000 shares

P

22.00 per share 21.50 per share 22.50 per share

DETERMINE THE FOLLOWING: 1. The amount of proceeds received from the sale of the bonds on July 1, 2018. 2. The current portion of the notes payable at March 31, 2020. 3. The balance of the estimated warranties payable at March 31, 2020 4. The total amount to be reported as total current liabilities on March 31, 2020. 5. The total amount to be reported as noncurrent liabilities on March 31,2020. QUESTIONS: 1. How much was received by Feel na Feel from the sale of the bonds on July 1, 2018? a. P 8,852,960 b. P10,000,000 c. P10,500,000 d. P10,647,040 2. What is the current portion of Feel na Feel’s notes payable at Mach 31, 2020? a. P2,800,000 b. P1,600,000 c. P1,300,000 d. P3,800,000 3. The balance of the estimated warranties payable at March 31, 2020 is: a. P342,000 b. P18,000 c. P520,000 d. P180,000 4. On March 31, 2020, Feel na Feel’s statement of financial position would report total current liabilities of: a. P5,286,000 b. P4,386,000 c. P5,336,000 d. P5,642,000 5. On March 31, 2020, Feel na Feel’s statement of financial position would report total non-current liabilities of: a. P14,389,350 b. P14,352,217 c. P14,370,783 d. P14,252,960

SOLUTIONS: 1. Present value of principal (10,000,000 x 0.31180) Present value of interest payments (10,000,000 x 5% = 500,000 x 11.46992) ISSUE PRICE/PROCEEDS

3, 118, 000 5, 734, 960 8, 852, 960

2. April 1, 2020 July 1, 2020 October 1, 2020 January 1, 2021 TOTAL

400, 000 600, 000 300, 000 300, 000 1, 600, 000

3. Balance, April 1, 2019 Add: Warranty expense for current year Total Less: Actual warranty costs BALANCE, MARCH 31, 2020

180, 000 520, 000 700, 000 358, 000 342, 000

4. Notes payable – current portion Estimated warranties payable Accounts payable Payroll- related accruals and deductions withheld Miscellaneous accruals Cash dividends payable Accrued interest on: Bonds payable (10,000,000 X 10% X 3/12) Notes payable TOTAL CURRENT LIABILITIES

1, 600, 000 342, 000 740, 000 404, 000 150, 000 1, 200, 000 250, 000 600, 000 5, 286, 000

5. AMORTIZATION SCHEDULE (PARTIAL) Date 07/01/18 12/31/18 07/01/19 12/31/19 07/01/20

Interest Paid -500, 000 500, 000 500, 000 500, 000

Interest Expense -531, 178 533, 048 535, 031 537, 133

Bonds Payable Carrying value, Jan. 1 2020 Add: Discount Amortization Jan. 1 – Mar. 31 (37, 133 x 3/6) Notes Payable – noncurrent portion: (7, 000, 00 – 1, 600, 000 current portion) TOTAL NON-CURRENT LIABILITIES

Discount Amortization -31, 178 33, 048 35, 031 37, 133

8, 952, 217 18, 566

8, 970, 783 5, 400, 000 14, 370, 783

Carrying Value 8, 852, 960 8, 884, 138 8, 917, 186 8, 952, 217 8, 989, 350...