AUDITING (SY.

2017 – 2018) - LIABILITIES

PROBLEM I b. 7,500,000 d. 7,610,000

Dalias Corporation is selling audio and video appliances. The
company’s information relates to the obligations of the company as PROBLEM II
of March 31, 2015: In your initial audit of Bulls Co., you find the following ledger
account balances.
Notes payable
Dallas has signed several notes with financial institutions. The 12%, 25 year Bonds Payable, 2011 issue
maturities of these notes are given below. The total unpaid interest 1/1/2011 CR P1,600,000
for all of these notes amounts to P340,000 on March 31, 2015.
Due date Amount
April 31, 2015 P700,000 Treasury Bonds
July 31, 2015 900,000 10/1/2015 CD P216,000
February 1, 2016 800,000
April 31, 2016 1,200,000 Bond Premium
June 30, 2016 1,500,000 1/1/2011 CR P80,000
P5,100,000
Estimated warranties Bond Interest Expense
Dallas has a one-year product warranty on some selected items. The 1/1/2015 CD P 96,000
estimated warranty liability on sales made during the 2013-2014 7/1/2015 CD 96,000
fiscal year and still outstanding as of March 31, 2014, amounted to
P252,000. The warranty costs on sales made from April 1, 2014 to The bonds were redeemed for permanent cancellation on October 1,
March 31, 2015, are estimated at P630,000. The actual warranty costs 2015 at 105 plus accrued interest.
incurred during 2014-2015 fiscal year are as follows:
QUESTIONS:
Warranty claims honored on Based on the above and the result of your audit, answer the
2013-2014 sales P252,000 following: (Use straight line amortization method)
Warranty claims honored on
2014-2015 sales 285,000 1. The adjusted balance of bonds payable as of December 31,
Total P537,000 2015 is
a. P1,400,000 c. P1,600,000
Trade payables b. 1,000,000 d. 1,384,000
Account payable for supplies, goods, and services purchases on open
account amount to P560,000 as of March 31, 2015. 2. The unamortized bond premium on December 31, 2015 is
a. P80,000 c. P64,000
Dividends b. 56,000 d. 58,800
On March 10,2015, Dallas’ board of directors declared a cash
dividend of P0.30 per ordinary share and a 10% ordinary share 3. The total bond interest expense for the year 2015 is
dividend. Both dividends were to be distributed on April 5, 2015 to a. P189,100 c. P182,900
ordinary shareholders on record at the close of business on March 31, b. 188,800 d. 182,800
2015. As of March 31, 2015, Dallas has 5 million, P2 par value,
ordinary shares issued and outstanding. 4. The gain or loss on partial bond redemption is
a. P1,900 loss c. P1,900 gain
Bonds payable b. 18,100 loss d. 18,100 gain
Dallas issued P5,000,000, 12% bonds, on October 1,2009 at 96. The
bonds will mature on October 1, 2019. Interest is paid semi-annually PROBLEM III
on October 1 and April 1. Dallas uses the straight line method to On January 1, 2014, Thunder Corporation issued 2,000 of its 5 year,
amortize bond discount. P1,000 face value, 11% bonds dated January 1 at an effective annual
interest rate (yield) of 9%. Interest is payable each December 31.
Questions: Thunder uses the effective interest method of amortization. On
Based on the foregoing information, determine the adjusted balances December 31, 2015, the 2,000 bonds were extinguished early through
of the following as of March 31, 2015: acquisition in the open market by Thunder for P1,980,000 plus
accrued interest.
1. Estimated warranty
a. P252,000 c. P630,000 On July 1,2014, Thunder issued 5,000 of its 6-year, P1,000 face
b. 345,000 d. 882,000 value, 10% convertible bonds at par. Interest is payable every June 30
and December 31. On the date of issue, the prevailing market interest
2. Unamortized bond discount rate for similar debt without the conversion option is 12%. On July
a. P110,000 c. P200,000 1,2015, an investor in Thunder’s convertible bonds tendered 1,500
b. 100,000 d. 90,000 bonds for conversion into 15,000 ordinary shares of Thunder, which
had a fair value of P105 and a par value of P1 at the date of
3. Bond interest payable conversion.
a. P 0 c. P150,000
b. 300,000 d. 250,000 QUESTIONS:
Based on the above and the result of your audit, determine the
4. Total current liabilities following: (Round off present value factors to four decimal places.)
a. P6,445,000 c. P5,445,000
b. 5,105,000 d. 3,945,000 1. The issue price of the 2,000 5-year, P1,000 face value
bonds on January 1, 2014 is
5. Total noncurrent liabilities a. P2,155,534 c. P2,000,000
a. P7,700,000 c. P7,590,000 b. 1,844,434 d. 2,147,800
Page | 1
AUDITING (SY. 2017 – 2018) - LIABILITIES

2. The carrying amount of the 2,000 5-year, P1,000 face value

bonds on December 31, 2014 is
a. P1,898,434 c. P2,000,000
b. 2,129,534 d. 2,121,100

3. The gain on early retirement of bonds on December 31,

2015 is
a. P20,000 c. P121,286
b. 112,000 d. 0

4. The issuance of the 6-year, P1,000 face value bonds on July

1,2014 increased equity by
a. P419,050 c. P371,050
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
b. 1,374,000 d. 1,377,697

Page | 2