Requirements: What is the correct accrued expenses balance as of December 31, as a result of your audit? How much from the 12% Notes payable, bank shall be presented as current as of December 31, 2020?
In your audit of Pink Corporation’s liabilities accounts in relation to the company’s financial statements audit for the period ended December 31, 2020, an excerpt of the company’s unadjusted
Accounts payable, net of a P12,000 debit balance |
P399,000 |
Accrued expenses |
17,400 |
Provision for warranties |
276,375 |
12% Notes payable, Bank due December 31, 2023 |
500,000 |
Audit notes:
(A) Purchases cut-off procedure information:
December Purchases
RR Number |
Receiving Report Date |
Amount |
|
Particulars |
82101 |
Dec. 26, 2020 |
P12,900 |
|
FOB Destination |
82102 |
Dec. 28, 2020 |
15,200 |
|
FOB Shipping Point |
82103 |
Dec. 29, 2020 |
11,900 |
|
On consignment |
82105 |
Dec. 31, 2020 |
9,500 |
|
FOB Destination |
82106 |
Jan. 2, 2021 |
13,200 |
|
Goods in transit; FOB Buyer |
82107 |
Jan. 3, 2021 |
8,900 |
|
Goods in transit; FOB Shipping Point |
January Purchases Journal Entries
RR Number |
Receiving Report Date |
Amount |
|
Particulars |
82108 |
Dec. 31, 2020 |
P10,800 |
|
FOB Destination |
82109 |
Jan. 3, 2021 |
16,700 |
|
Goods in transit; FOB Destination |
82110 |
Jan. 4, 2021 |
12,100 |
|
Goods in transit; FOB Seller |
82111 |
Jan. 5, 2021 |
8,100 |
|
FOB Shipping Point |
Note:
- RR 82104 were for goods costing P13,900 received on December 29, 2020. The transaction was yet to be recorded since the purchase invoice documents from the suppliers were received only on January 6, 2021.
- Physical count of goods was done on December 30, 2020. Only goods received on or before December 30 were included in the physical count which amounted to P235,900.
(B) Cash disbursements cut-off procedure information:
January Cash Disbursement Journal Entries
AP Voucher Number |
Amount |
|
Account Charged (Debited) |
Particulars |
12-931 |
P12,900 |
|
Accounts payable |
Inventory purchase and received through RR82101 |
1-001 |
12,600 |
|
Utilities expense |
December electricity bill |
1-002 |
12,900 |
|
Repairs expense |
Delivery equipment repairs in December of 2020 |
1-003 |
5,500 |
|
Supplies expense |
Store supplies purchased and received on December 30, the suppliers’ invoice for which was received on January 2 |
12-933 |
9,500 |
|
Accounts payable |
Inventory purchased and received through RR82105 |
12-935 |
10,000 |
|
Accrued expense |
Lawyers retainer’s fee for the month of December 2020 |
1-004 |
6,900 |
|
Professional fees |
CPA’s retainers fee for the month of January 2021 |
1-005 |
7,400 |
|
Accrued expense |
December royalty fees on manufacturing equipment |
(C) Provision for warranties information:
The company has a two-year assurance-type warranty on its products for defects. The unadjusted balance per books was the accrued warranties in the previous year. The only entry made during the year was the incurrence of warranty cost during the year where the entry made was to debit warranty expense and credit to cash at P495,000. The following information are deemed relevant for your audit of the warranty related account balances:
|
2019 |
2020 |
Sales (in number of units) |
1,500 |
1,800 |
Selling price |
P9,000 |
P9,200 |
Actual warranty cost payments |
198,000 |
495,000 |
Based on past experience, 55% of the goods sold are expected to be returned for warranty repairs. Estimated cost to repair each item returned by the customer is at P575 per unit.
(D) The company had a debt agreement with the bank from whom the company owes the 12% Note payable due on December 31, 2023, where the company had to maintain a
Requirements:
- What is the correct accrued expenses balance as of December 31, as a result of your audit?
- How much from the 12% Notes payable, bank shall be presented as current as of December 31, 2020?
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