Audit of Liabilities

Problem A

Current Non-current
a. 150,000
b. 3,600,000
c. 2,500,000
d. 1,000,000 3,000,000
e. 1,000,000
Total 5,750,000 5,500,000

Problem B

Accounts payable 680,000

Cash overdraft (XYZ Bank) 80,000
Customers’ accounts with credit balances 25,000
Employees’ income tax payable 100,000
Estimated warranty payable 50,000
Estimated premium claims outstanding 90,000
Income tax payable 400,000
Notes payable due in 2021 (4,000,000/20 x 2) 400,000
Salaries payable 400,000
Total current liabilities 2,225,000

Problem C

1. D.

Discounts on 2020 purchases 80,000

Less: Discounts taken 32,000
Discounts still available in the accounts payable
balance 8,000 40,000
Purchase discounts lost 40,000

2. A. The accounts payable should be reported net of discounts still available at the end of the
reporting period which amounts to ₱8,000.

3. B. Under the net method, purchases are reported net of discounts, regardless of whether the
discounts are taken or not. Hence, the purchases account should be reduced by ₱80,000.

4. C.
Problem D

Advertising 37,500
Fixed rent, Dec 16-31 (₱120,000 x ½) 60,000
Variable rent (₱7,500,000 - 6,000,000 = ₱1,500,000 x 5%) 75,000
Total 172,500

Problem E

1. B = 10% (Net income before tax and bonus – B – T)

T = 30% (Net income before tax and bonus – B)

T = 30% (₱4,650,000 – B)
T = 1,395,000 - .30B

B = 10% (Net income before tax and bonus – B – T)

B = 10% (₱4,650,000 – B – [1,395,000 - .30B])
B = 10% (4,650,000 – B – 1,395,000 + .30B)
B = 465,000 - .10B - 139,500 + .03B
B = 325,500 – .10B + .03B
B + .10B - .03B = 325,500
1.07B = 325,500
B = 304,206

2. T = 30% (Net income before tax and bonus – B)

T = 30% (₱4,650,000 – 304,206)
T = 30% (4,345,794)
T = 1,303,738

3. Bonus Expense 304,206

Bonus Payable 304,206