PROBLEM 1 In the course of your audit of Khaleesi Inc. for the year ended December 31, 2014, you took note of the following information: ITEM AUDIT NOTES a. Accounts payable - trade, P170,000 This amount is net of P30 000 accounts with debit balances b. Notes payable - trade, P70,000 The notes are all with five-months term bearing interest at 15%. P50,000 from the notes is dated September 1, while the rest are dated November 3. c. Advance receipts from customers, The goods pertaining to these advances will be delivered in 2015. P100,000. d. Containers Deposit, P50,000 This is an amount received from customers for returnable containers. e. Notes payable - BPI , P200,000 This is a long-term note for five years and are being paid off at the rate of P4,000 per month (monthly payment include interest). The note was issued on Dec. 31, 2014. f. Dividends in arrears on cumulative The company is yet to declare dividends since its last declared and preferred stock, P20,000. distributed dividends in 2015. g. Stock dividends payable on common stocks, P37,200. h. Liabilities under guarantee agreement, This pertains to Probe's guarantee of its employees' bank loans. As per P45,000. past experience, employees unlikely default on their loan payments. i. Convertible bonds, P1,000,000 1,000 bonds is convertible to 10 ordinary shares. Amount due on December 31, 2017. j. Notes payable - officers, P40,000 This is due in six months. k. Salaries and wages Payroll for the period December 16, 2014 to January 15, 2015 amounted to P68,000 I. Notes receivable, P30,000 This note has been discounted in a bank on a without-recourse basis, where the company received cash of P24,000. m. Output VAT, P246,000 Input VAT on purchases and other operating expenses amounted to P164,000. n. Accounts receivable, P215,000 The accounts receivable is net of P12,300 customer credit balances. O. Cash in banks, P115,000 The company's cash in banks include a cash balance with BPI amounting to P125,000; with PNB amounting to P55,000, and; an overdraft balance with BDO. p. Common stock warrants outstanding Amount to date, P250,000 q. Common stock options outstanding Amount to date, P150,000 r. Estimated warranty costs on goods sold, This pertains to warranty costs on goods sold in 2013 and 2014. P46,000, s. Installment notes payable, P75,000 This is for the equipment purchases, only one-third is due in 2015. t. Provision for losses During the year, one of the manufacturing equipment of the company exploded injuring an employee. The employee filed claims for damages on November 3. There has still been no resolution yet on the case as of the balance sheet date. The company lawyers however believe that it is probable that the company will be liable between P25,000 and P75,D00. u. Deferred tax liability, P150,000 This refers to deferred tax liabilities on cumulative temporary difference on taxable income and financial income which will reverse evenly over the next year.Jon Snow carries a wide variety of promotion techniques to attract customers. Kitchen and home appliances are sold in a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 5% of sales. The premium is offered on the home furniture. Customer receive a coupon for each peso spent on home furniture. Customers may exchange 2,000 coupons and P50 for a rice cooker which the company purchased at P340 for each rice cooker and estimates that 60% of the coupons given to customers will be redeemed. The company's total sales for 2014 were P115.2M - P86.4M from kitchen and home appliances and P28.8M from home furniture. Replacement parts and labor for warranty work totaled P2.624M during 2014. A total of 5,200 rice cookers used in the premium program were purchased during the year and there were 9,600,000 coupons redeemed in 2014. The accrual method is used by the company to account for the warranty and premium costs for financial reporting purposes. The balance in the accounts related to warranties and premiums on January 1, 2014, were as shown below: Inventory of Premium items P340,000 Estimated liabilities for premiums 716,000 Estimated liabilities for warranties 2,176,000 Based on the information above, determine