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Audit of Liabilities. REVIEW
Audit of Liabilities. REVIEW
1/1/2011 CR P1,600,000
PROBLEM I
Treasury Bonds
Dalias Corporation is selling audio and video appliances. The 10/1/2015 CD P216,000
company’s information relates to the obligations of the company as of
March 31, 2015: Bond Premium
1/1/2011 CR P80,000
Notes payable
Dallas has signed several notes with financial institutions. The Bond Interest Expense
maturities of these notes are given below. The total unpaid interest for 1/1/2015 CD P 96,000
all of these notes amounts to P340,000 on March 31, 2015. 7/1/2015 CD 96,000
Due date Amount The bonds were redeemed for permanent cancellation on October 1,
April 31, 2015 P700,000 2015 at 105 plus accrued interest.
July 31, 2015 900,000
February 1, 2016 800,000 QUESTIONS:
April 31, 2016 1,200,000 Based on the above and the result of your audit, answer the following:
June 30, 2016 1,500,000 (Use straight line amortization method)
P5,100,000
Estimated warranties 1. The adjusted balance of bonds payable as of December 31,
Dallas has a one-year product warranty on some selected items. The 2015 is
estimated warranty liability on sales made during the 2013-2014 fiscal a. P1,400,000 c. P1,600,000
year and still outstanding as of March 31, 2014, amounted to P252,000. b. 1,000,000 d. 1,384,000
The warranty costs on sales made from April 1, 2014 to March 31, 2. The unamortized bond premium on December 31, 2015 is
2015, are estimated at P630,000. The actual warranty costs incurred a. P80,000 c. P64,000
during 2014-2015 fiscal year are as follows: b. 56,000 d. 58,800
Warranty claims honored on 3. The total bond interest expense for the year 2015 is
2013-2014 sales P252,000 a. P189,100 c. P182,900
Warranty claims honored on b. 188,800 d. 182,800
2014-2015 sales 285,000 4. The gain or loss on partial bond redemption is
Total P537,000 a. P1,900 loss c. P1,900 gain
Trade payables b. 18,100 loss d. 18,100 gain
Account payable for supplies, goods, and services purchases on open
account amount to P560,000 as of March 31, 2015. PROBLEM III
Dividends On January 1, 2014, Thunder Corporation issued 2,000 of its 5 year,
On March 10,2015, Dallas’ board of directors declared a cash dividend P1,000 face value, 11% bonds dated January 1 at an effective annual
of P0.30 per ordinary share and a 10% ordinary share dividend. Both interest rate (yield) of 9%. Interest is payable each December 31.
dividends were to be distributed on April 5, 2015 to ordinary Thunder uses the effective interest method of amortization. On
shareholders on record at the close of business on March 31, 2015. As December 31, 2015, the 2,000 bonds were extinguished early through
of March 31, 2015, Dallas has 5 million, P2 par value, ordinary shares acquisition in the open market by Thunder for P1,980,000 plus accrued
issued and outstanding. interest.
Bonds payable
Dallas issued P5,000,000, 12% bonds, on October 1,2009 at 96. The On July 1,2014, Thunder issued 5,000 of its 6-year, P1,000 face value,
bonds will mature on October 1, 2019. Interest is paid semi-annually on 10% convertible bonds at par. Interest is payable every June 30 and
October 1 and April 1. Dallas uses the straight line method to amortize December 31. On the date of issue, the prevailing market interest rate
bond discount. for similar debt without the conversion option is 12%. On July 1,2015,
an investor in Thunder’s convertible bonds tendered 1,500 bonds for
Questions: conversion into 15,000 ordinary shares of Thunder, which had a fair
Based on the foregoing information, determine the adjusted balances of value of P105 and a par value of P1 at the date of conversion.
the following as of March 31, 2015:
1. Estimated warranty QUESTIONS:
a. P252,000 c. P630,000 Based on the above and the result of your audit, determine the
b. 345,000 d. 882,000 following: (Round off present value factors to four decimal places.)
2. Unamortized bond discount 1. The issue price of the 2,000 5-year, P1,000 face value bonds
a. P110,000 c. P200,000 on January 1, 2014 is
b. 100,000 d. 90,000 a. P2,155,534 c. P2,000,000
3. Bond interest payable b. 1,844,434 d. 2,147,800
a. P 0 c. P150,000 2. The carrying amount of the 2,000 5-year, P1,000 face value
b. 300,000 d. 250,000 bonds on December 31, 2014 is
4. Total current liabilities a. P1,898,434 c. P2,000,000
a. P6,445,000 c. P5,445,000 b. 2,129,534 d. 2,121,100
b. 5,105,000 d. 3,945,000 3. The gain on early retirement of bonds on December 31, 2015
5. Total noncurrent liabilities is
a. P7,700,000 c. P7,590,000 a. P20,000 c. P121,286
b. 7,500,000 d. 7,610,000 b. 112,000 d. 0
4. The issuance of the 6-year, P1,000 face value bonds on July
PROBLEM II 1,2014 increased equity by
In your initial audit of Bulls Co., you find the following ledger account a. P419,050 c. P371,050
balances. b. 411,300 d. 0
5. The conversion of the 1,500 6-year, P1,000 face value bonds
on July 1, 2015 increased share premium by
a. P1,485,000 c. P1,415,054