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    Audit Fot Liability Problem #8

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    Ma Teresa B. Cerezo
    Abam Corporation has various financial obligations as of March 31, 2007 that must be adjusted, including estimated warranty payable of $345,000, unamortized bond discount of $90,000, and bond interest payable of $300,000. The total current liabilities amount to $5,445,000 which includes short-term notes payable, interest and estimated warranty payable, trade payables, and dividends payable. The total noncurrent liabilities are $7,610,000 consisting of long-term notes payable and bonds payable.

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    Audit Fot Liability Problem #8

    Uploaded by

    Ma Teresa B. Cerezo
    1K views2 pages
    Abam Corporation has various financial obligations as of March 31, 2007 that must be adjusted, including estimated warranty payable of $345,000, unamortized bond discount of $90,000, and bond interest payable of $300,000. The total current liabilities amount to $5,445,000 which includes short-term notes payable, interest and estimated warranty payable, trade payables, and dividends payable. The total noncurrent liabilities are $7,610,000 consisting of long-term notes payable and bonds payable.

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    Audit fot Liability Problem #8

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    Abam Corporation has various financial obligations as of March 31, 2007 that must be adjusted, including estimated warranty payable of $345,000, unamortized bond discount of $90,000, and bond interest payable of $300,000. The total current liabilities amount to $5,445,000 which includes short-term notes payable, interest and estimated warranty payable, trade payables, and dividends payable. The total noncurrent liabilities are $7,610,000 consisting of long-term notes payable and bonds payable.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1K views2 pages

    Audit Fot Liability Problem #8

    Uploaded by

    Ma Teresa B. Cerezo
    Abam Corporation has various financial obligations as of March 31, 2007 that must be adjusted, including estimated warranty payable of $345,000, unamortized bond discount of $90,000, and bond interest payable of $300,000. The total current liabilities amount to $5,445,000 which includes short-term notes payable, interest and estimated warranty payable, trade payables, and dividends payable. The total noncurrent liabilities are $7,610,000 consisting of long-term notes payable and bonds payable.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Problem 8

    Abam Corporation is selling audio and video appliances. The company’s fiscal year ends on
    March 31. The following information relates the obligations of the company as of March 31,
    2007.

    Notes payable
    Abam has signed several long- term notes with financial institutions. The maturities of
    these notes are given below. The total unpaid interest for all of these notes amount to
    P340,000 on March 31, 2007.

    Due date Amount


    April 31, 2007 P 600,000
    July 31, 2007 900,000
    September 1, 2007 450,000
    February 1, 2008 450,000
    April 1, 2008- March 31, 2011 2,700,000
    P5,100,000
    Estimated warranties:
    Abam has one year product warranty on some selected items. The estimated warranty
    liability on sales made during the 2005-2006 fiscal year and still outstanding as of March
    31, 2006, amounted to P252,000. The warranty costs on sales made from April 1, 2006 to
    March 31, 2007 are estimated at P630,000. The actual warranty costs incurred during
    2006- 2007 fiscal year as follows:

    Warranty claims honored on 2005- 2006 P252,000


    Warranty claims honored on 2006- 2007 sales 285,000
    Total P537,000

    Trade payables
    Accounts payable for supplies, goods and services purchases on open account amount to
    P560,000 as of March 31, 2007.

    Dividends
    On march 10, 2007, Abam’s board of directors declared a cash dividend of P0.30 per
    common share and a 10% common stock dividend. Both dividends were to be distributed
    on Aptil 5, 2007 to common stockholders on record at the close of business on March 31,
    2007. As of March 31, 2007, Abams has 5 million, P2 par value common stock shares issued
    and outstanding.

    Bonds payable
    Abams issued P5,000,000, 12% bonds, on October 1, 2001 at 96. The bonds will mature on
    October 1, 2011. Interest is paid semi- annually on October 1 and April 1. Abams uses
    straight line method to amortize bond discount.

    Based on the forgoing information, determine the adjusted balances of the following as of
    March 31, 2007:
    Questions
    1. Estimated warranty payable
    a. P252,000 b. P345,000 c. P630,000 d. P882,000

    2. Unamortized bond discount


    a. P110,000 b. P200,000 c. P100,000 d. P90,000

    3. Bond interest payable


    a. P0 b. P300,000 c. P150,000 d. P250,000

    4. Total current liabilities


    a. P6,445,000 b. P5,105,000 c. P5,445,000 d. P3,945,000

    5. Total noncurrent liabilities


    a. P7,700,000 b. P7,590,000 c. P7,500,000 d. P7,610,000

    Solution
    1. B
    Total Warranty Expense 882,000
    Less: Paid warranty 537,000
    Est. liability 345,000
    2. D
    Discount on BP (P5M x 4%) 200,000
    Amortization (200,000/120 x 66) 110,000
    (Oct. 1, 1998 – March 31, 2004)______
    Unamortized discount on BP 90,000
    3. D P5M x 12% x 6/12 = P300,000
    4. C
    Notes payable 2,400,000
    Interest payable 640,000 (340,000 + 300,000)
    Est. liability 345,000
    Trade payable 560,000
    Dividends payable 1,500,000
    Total Current Liability 5,445,000
    5. D
    Notes payable 2,700,000
    Bonds payable 4,910,000
    Total 7,610,000

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