Question
The audit assistant assigned to audit STU's Corporation Noncurrent Liabilities as of December 31, 2020, presented to you the following working paper for your review:
The audit assistant assigned to audit STU's Corporation Noncurrent Liabilities as of December 31, 2020, presented to you the following working paper for your review:
Noncurrent Liabilities as of 12/31/2020:
Serial Note payable, June 30, 2018 Php 300, 000
Term Note payable, January 2, 2019 1, 000, 000
10% bonds payable 5, 000, 000
Liability Under Finance Lease, January 2, 2019 6, 500, 000
Audit notes:
a. The serial notes payable is being paid at P50, 000 plus 10% interest due every July 1 and January 1 of each year. The first payment was made on January 1, 2019 and semi-annuallythereafter. Payments of principal and interest were appropriately made per records. Year-end adjustments related to the note is yet to be made at year end.
b. The term note payable was 5 year, a non-interest-bearing loan from bank originated on January 2, 2019 when the prevailing market rate of interest for similar loan is at 8%. Records revealed that the difference between the proceeds from the loan and the principal amount credited to Notes payable was charged to interest expense on January 2, 2019.
c. The 10% Bonds Payable which were originally dated January 1, 2013 had a 15-year term and pays interest semi-annually every July 1 and January 1. The bonds were issued on January 1, 2018 when the prevailing market rate of interest for similar debt security was 8%. The records also revealed that the difference between the proceeds from the bond issuance and the face value of the bonds were charged to interest expense upon issue.
d. The carrying value per books of the Liability under finance lease reflects the total lease payment to be made for the remaining lease term. The lease agreement requires semi-annual period, June 30 and December 31. The lease has already run for 2 years as of December 31, 2020. Records show that lease payments were recorded as debit to Liability under Finance Lease account and credit to cash. Asset was capitalized at the total projected lease payments for the entire lease term and was depreciated over the term of the lease. The implicit rate known to both parties at the time the lease agreement was entered into was 8%. The useful life of the asset was 20 years and its fair value by the time the lease was entered into was P4.5M.
Requirements:
27. What is the correct carrying value of the term note payable as of December 31, 2020?
a. 680, 584
b. 735, 031
c. 793, 833
d. 857, 340
28. What is the correct carrying value of the bonds payable as of December 31, 2020?
a. 5, 520, 637
b. 5, 582, 614
c. 5, 528, 156
d. 5, 555, 919
29. What is the retroactive adjustment to retained earnings beginning in relation to your audit of the Bonds Payable?
a. 582, 614
b. 555, 919
c. 528, 156
d. No adjustment necessary
30. What is the correct carrying value of leased asset as of December 31, 2020?
a. 3, 746, 607
b. 3, 503, 114
c. 3, 995, 693
d. 3, 462, 933
31. What is the correct carrying value of the long term lease liability as of December 31, 2020?
a. 4, 323, 008
b. 4, 165, 765
c. 3, 995, 693
d. 3, 811, 742
32. What is the total current portion of long-term debt to be reported as current liability in the 2020 Statement of Financial Position?
a. 183, 952
b. 170, 074
c. 270, 074
d. 283, 952
33. What is the total interest expense to be reported in 2020 Statement of Comprehensive Income?
a. 884, 270
b. 807, 963
c. 864, 270
d. 866, 770
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started