Please h

ABC Corporation was incorporated ten years ago as a common carrier engaged in the transportation of passengers, man, merchandise, and freight by air. It also performs agricultural aerial application of chemicals and also does cloud seeding operation. Its main office is located in Pasay City and it has several branches operating in Cebu, Cagayan de Oro, Palawan, and Boracay. You were re-appointed as auditor for the year 1997. On January 5, 1998, when you visited ABC Company office for a surprise cash count, you were given by the controller a copy of the unadjusted trial balance as of December 31, 1997. Based on your review of the corporate records, you discovered that some tank accounts are not reconciled regularly. You noted the following information: 1. Transfer of funds from PCIB-Davao to PCIB-Manila amounting to Php 500,000 was not recorded. 2. Collection of current receivables from customers in Davao deposited to PCIB totaling Php 85,000 was not recorded. 3. A check issued on December 28, 1997 for Php 15,000 payable to a pilot based in Cebu was not released until January 5, 1998. This was booked as other assets. 4. The sales report from Cagayan de Oro for the last week of December, 1997 arrived in Manila only on January 15, 1998. Revenues from charter sales amounted to Php 75,000 while those from commuter sales totaled Php 48,000. These were deposited to PCIB-Cagayan de Oro but not yet recorded as of year-end. 5. Ticket Nos. 1038-1042 for a commuter flight to Boracay for 5 passengers amounting to Php 23,000 which were recorded as cash sales in December were canceled. Refund for said tickets, net of penalty charge of Php 100 per ticket, has not been made as of December 31, 1997. Penalty and other service charges are credited to other income. 6. Postdated checks from passengers for charter flights in January 1998 totaling, Php 55,000 were included in the deposits in transit and recorded as revenues in December 1997. 7. Various bank charges totaling Php 3,250 were not recorded. 8. Cash on hand totaling Php 12,500 representing income form cargoes shipped to Boracay on December 30 - 31, 1997 was recorded on January 2, 1998 as other income. This was included as income for January 1998. | ABC Company furnished you an aging of accounts receivable and you noticed several outstanding accounts for more than one year still included in the schedule but collectability is highly uncertain. Upon discussion with the controller, he agreed that you include these accounts for write off. These overdue accounts to be written off totaled Php 97,000. It is also the policy of the company to provide allowance for doubtful accounts as follows: Current 1 to 3 months 2% Over 3 months to 6 months 5% Over 6 months to 1 year 10% Over 1 year 15%The breakdown of accounts receivable based on the schedule is as follows: Current 1 to 3 months 4,518,000 Over 3 months to 6 months 606,000 Over 6 months to 1 year 419,000 Over 1 year 237,000 Total 5,780,000 ABC's idle funds are regularly lent out to affiliates at market rates. As of December 31, 1997, total notes receivable amounted to Php 1,500,000 which ears interest at 13% per annum maturing after 90 days, value date of this note is October 28, 1997. No accrual was made as of year-end. The company uses the perpetual method in accounting for spare parts inventory. Stock ledger cards are maintained for each item and costing is done whenever there are movements either receipt or issuance, the inventory list was given to you but the total does not tally with general ledger whose balance is over by Php 128,900. Your review showed that some issuances of parts totaling Php 85,700 as evidence by issue slips but reflected in the stock cards. Also, some purchases paid in cash totaling Php 43,200 were not included in the inventory list but already recorded in the books. Engine inventory per books does not tally with the list submitted to you which is short by Php 1,700,000. You noted that 3 engines taken from the warehouse on December 1, 1997 were installed in the aircrafts whose old engines costing Php 1,300,000 have been fully depreciated and installed in the 3 aircrafts are as follows: Beechcraft RPC 1213 520,000 Twin Otter RPC 1214 700,000 Cesna RPC 1215 480.000 1, 700, 000 As a matter of policy, engines are capitalized and included in aircraft account and depreciated based on estimated total flying hours while the hull or body of the aircrafts is depreciated over 15 years based on straight-line method. As per record, the estimated flying hours and number of hours flown for December for the above aircrafts are as follows: Estimated No. Of Flying Hours Hours Flown Beechcraft RPC 1213 2,000 120 Twin Otter RPC 1214 3,500 210Cesna RPC 1215 1,800 100 Property and equipment consist of. Aircrafts (including engine replacements) Php 28,750,000 Delivery Equipment 2,600,000 Furniture and Equipment 1,380,000 Tools and Equipment 920.000 Total 33,650,000 ABC Company has a 20-year lease contract on the building it is occupying which will expire on September 30, 2007. It provides for an annual rental of Php 600,000. Payment for one year was made on September 28, 1997 and this was reflected as prepaid rent. The building under lease was renovated at a cost of Php 780,000 which was booked as repair expenses on October 1, 1997. Based on your discussion with the controller, these improvements will be amortized over the remaining term of the lease. On June 30, 1997, a motor vehicle costing Php 200,000 with accumulated depreciation of Php 190,000 was sold for Php 25,000. Cash was debited and delivery equipment was credited for the sales proceeds. A new aircraft was acquired on December 30, 1997 on an installment basis. The installment price of the equipment was P1,200,000 but the cash price was Php 1,000,000. The terms require down payment of P300,000 and the balance is payable in three equal annual installments beginning in December, 1998. A promissory note was issued for the balance of Php 900,000. The down payment of Php 300,000 was recorded as a debit to aircrafts and a credit to cash. Accounts payable represents liabilities for aviation gas and oil, purchases of spare parts and engines. As of year-end, however, it includes advances from officers totaling P1,000,000 which were used for working capital. As per agreement, this will be paid back within one year. You noted in your review that certain spare parts purchases on account totaling Php 99,000, which are already in the warehouse were not recorded in the books and in the inventory ledgers. You review of subsequent events revealed some payments pertaining to December, 1997 which were not accrued at year-end. These are: Check No. 111 12,570 Telephone charges Check No. 112 28,900 Electric bills Check No. 113 3,400 Water Check No. 114 34,520 Pilots' overtime Check No. 115 2.150 Office supplies Total 81,540In January, 1997, the company issued Php 10,000,000 of 10 year bonds at 90. The discount was charged to interest expense in 1997. Interest on the bonds as 14% payable quarterly on January 1, April 1, July 1, and October 1 of each year. No accrual was made as of December 31, 1997. The company declared a 20% stock dividend on September 30, 1997 but no entry has yet been made on the books. During the meeting of the board of directors held on December 15, 1997, a 10% cash dividend was declared to stockholders of record as of December 31, 1997, payable on or before January 20, 1998 It has been the policy of the company to appropriate for contingencies an amount equivalent to 5% at the annual net income after tax. No appropriation has been set up for the year 1997. ABC Company Working Balance Sheet December 31, 1997 PER BOOKS AUDIT ADJUSTMENTS FINAL BALANCES Current assets Cash 1,396,000 Accounts receivable - trade 5,780,000 Allowance for doubtful accounts (166,000) Notes receivable 1,500,000 Interest receivable 0 Inventories Engines 6,500,000 Spare parts 7,280,000 Gas and Oil 477,000 Total inventories 14,257,000 Prepayments 600,000 Total 23,367,000 Property, plant and equipment Aircraft 28,750,000 Delivery equipment 2,600,000 Office furniture and equipment 1,380,000Tools and equipment 920,000 Leasehold improvements 0 Total 33,650,000 Accumulated depreciation (7,280,000) Net 6,370,000 Other assets 1,350,000 Total 51,087,000 Current liabilities: Accounts payable 7,058,000 Accrued expenses 249,000 Interest payable 0 Income tax payable 1,589,000 Dividends payables 0 Other liabilities 1,751,000 Current portion of long-term notes 0 Total 10,650,000 Long-term liabilities: Notes payable -net of current portion Discount on notes payables Bonds payable 10,000,000 Discount on bonds payables Total 10,000,000 Stockholders equity Paid-up capital 20,000,000 Retained earnings - free 9,601,000 Appropriated for contingencies 836.000 Total 30,437,000 Total 51,087,110ABC Company Working Profit and Loss December 31, 1997 PER BOOKS AUDIT ADJUSTMENTS FINAL BALANCES Revenues - charter and commuter 42 800 000 Prime cost: Aviation gas and oil 15, 170,000 Aviation insurance 4,500,000 Depreciation - aircrafts 4,250,000 Parts and accessories 2,980,000 Pilot's salaries 3,250,000 Total (30,150,000) Gross Profit 12,650,000 Operating expenses (7.480.000) Income from operations 5,170,000 Other income 720,000 Other charges (1.350,000) Income before taxes 4,540,000 Provision for income tax (1.589,000) Net income 2,951,000 Retained earnings, beginning 6,650,000 Dividends declared 0 Appropfor contingencies 0 Retained earnings, end 9,601,000Requirements: 1. Complete the schedule provided 2. Provide all the necessary adjusting entries with cross reference to the schedul 3. Compute for the final balances of the following accounts a. Accounts receivable f. Total Noncurrent liabilities b. Inventories g. Total stockholders' equity C. Accounts Payable h. Gross Profit d. Income Taxes Payable Income from operations e. Total Current liabilities Retained Earnings