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    Audit of Liabilities Answer Key

    Uploaded by

    Lyca Mae
    The document summarizes various audit problems related to liabilities. Problem A shows current and non-current liabilities for an entity. Problem B lists line items that make up total current liabilities. Problem C involves discounts on purchases and how they should be treated. Problem D provides expense items to calculate total prepaid rent. Problem E calculates bonus and tax expenses based on a percentage of net income before those items.

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    Audit of Liabilities Answer Key

    Uploaded by

    Lyca Mae
    252 views2 pages
    The document summarizes various audit problems related to liabilities. Problem A shows current and non-current liabilities for an entity. Problem B lists line items that make up total current liabilities. Problem C involves discounts on purchases and how they should be treated. Problem D provides expense items to calculate total prepaid rent. Problem E calculates bonus and tax expenses based on a percentage of net income before those items.

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    Audit of Liabilities Answer Key (2)

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    The document summarizes various audit problems related to liabilities. Problem A shows current and non-current liabilities for an entity. Problem B lists line items that make up total current liabilities. Problem C involves discounts on purchases and how they should be treated. Problem D provides expense items to calculate total prepaid rent. Problem E calculates bonus and tax expenses based on a percentage of net income before those items.

    Copyright:

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

    Audit of Liabilities Answer Key

    Uploaded by

    Lyca Mae
    The document summarizes various audit problems related to liabilities. Problem A shows current and non-current liabilities for an entity. Problem B lists line items that make up total current liabilities. Problem C involves discounts on purchases and how they should be treated. Problem D provides expense items to calculate total prepaid rent. Problem E calculates bonus and tax expenses based on a percentage of net income before those items.

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    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

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