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Ix - Audit of Liabilities: Questions

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45 views3 pages

Ix - Audit of Liabilities: Questions

Uploaded by

Mark Michael Legaspi
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IX – AUDIT OF LIABILITIES

PROBLEM NO. 1 – Current and noncurrent liabilities

You were able to obtain the following from the accountant for Agdangan Corp. related to the company’s
liabilities as of December 31, 2010.

Accounts Payable P 650,000


Notes Payable – trade 190,000
Notes Payable – bank 800,000
Wages and salaries payable 15,000
Interest payable ?
Mortgage notes payable – 10% 600,000
Mortgage notes payable – 12% 1,500,000
Bonds Payable 2,000,000

The following additional information pertains to these liabilities.


a. All trade notes payable are due within six months from the end of the reporting period.
b. Bank notes-payable include two separate notes payable to Allied Bank.
(1) A P300,000, 8% note issued March 1, 2008, payable on demand. Interest is payable every six-
months.
(2) A 1-year, P500,000, 11 ½ % not issued January 2, 2010. On December 30, 2010, Agdangan
negotiated a written agreement with Allied Bank to replace the note with a 2-year, P500,000,
10% note to be issued January 2,2011. The interest was paid on December 31, 2010.
c. The 10% mortgage note was issued October 1, 2007, with a term of 10 years. Terms of the note
give the holder the right to demand immediate payment if the company fails to make a monthly
interest payment within 10 days of the date the payment is due. As of December 31, 2016,
Agdangan is three months behind in paying its required interest payment.
d. The 12% mortgage note was issued May 1,2004, with a term of 20 years. The current principal
amount due is P1,500,000. Principal and interest payable annually on April 30. A payment of
P220,000 is due April 30, 2011. The payment includes interest of P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 2001. Interest is payable semi-annually
every June 30 and December 31.

QUESTIONS:
Based on the above and the result of your audit, answer the following.
1. Interest payable as of December 31, 2010 is
a. P155,000 c. P143,000
b. P203,000 d. P215,000
2. The portion of the Note Payable-bank to be reported under current liabilities as of December 31,
2010 is
a. P300,000 c. P500,000
b. P800,000 d. P 0

3. Total current liabilities as of December 31, 2010 is


a. P3,950,000 c. P4,138,000
b. P3,938,000 d. P 0

4. Total noncurrent liabilities as of December 31, 2010 is


a. P1,760,000 c. P2,560,000
b. P3,960,000 d. P1,960,000

Answers: 1)C 2)A 3)B 4)D

Suggested Solution:

Question No. 1
P300,000 note payable to bank (P300,000 x 8% x 4/12) P 8,000
Mortgage note payable – 10% (P600,000 x 10% x 3/12) 15,000
Mortgage note payable – 12% (P1,500,000 x 12% x 8/12) 120,000
Total interest payable, 12/31/10 143,000

Question No. 2
Note payable to bank – payable on demand P 300,000

The P500,000 note payable to bank will be classified as noncurrent because it was refinanced on a long
term basis as of December 31, 2010.

Question No. 3
Accounts Payable P 650,000
Notes Payable – trade 190,000
Notes Payable – bank (see no. 2) 300,000
Wages and salaries payable 15,000
Interest payable (see no. 1) 143,000
Mortgage note payable – 10% (with breach of loan covenant) 600,000
Mortgage note payable – 12% (P220,000 – P180,000) 40,000
Bonds payable, due 7/1/11 2,000,000
Total current liabilities, 12/31/10 P3,938,000
Question No. 4
Notes payable – bank (see no. 2) P 500,000
Mortgage note payable – 12% (P1,500,000 – P40,000) 1,460,000
Total noncurrent liabilities, 12/31/10 P 1,960,000

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