Asked by mousehi001
In the course of your audit of Scarlet Inc.'s December 31, 2020...
In the course of your audit of Scarlet Inc.'s December 31, 2020 liabilities the following schedule was presented to you by Scarlet Inc.'s bookkeeper:
Accounts payable P225,000
Notespayable, 20% due 4/1/21 500,000
Interes payable on Notes payable 75,000
Serial bonds payable, 12% 1,000,000
a. The accounts payable balance is net of a P35,000 advances made to a supplier for merchandise to be delivered in 2021.
Moreover, the following summarizes the result of your purchases cut-off procedures. You have ascertained that all related inventories were correctly accounted for.
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ReceivingRe port Supplier'sShip ReceivingR RR) NO. Amount mentDate eportDate ShipmentTerms Lastentriesonthe December2020Joumal 0633 P5,500 12/26/2020 12/28/2020 FOBDestination 0634 6,000 12/28/2020 1/2/2021 FOBDestination 0635 7,900 12/28/2020 12/30/2020 FOBShipping Point FirstentriesontheJanuary2021Joumal 0636 8,900 12/28/2020 1/3/2021 FOBShipping Point 0637 10,000 12/29/2020 12/31/2020 FOBDestination 0638 15,000 1/3/2021 1/1/2021 FOBShipping Point
a. The company started a promotional program in 2020 whereby for every five product labelscustomer surrenders with P25 cash, a customer shall receive an especially designed t-shirt.The company sold 40,000 units of the product covered by the said promotional program andpurchased 4,500 t-shirts in anticipation of the premium's redemption which the companyappropriately debited to premiums inventory account upon purchase. Each t-shirt costs P95.The company estimates that 60% of the product labels accompanying sales shall ultimatelybe presented for the redemption of premiums. 1,200 t-shirts remained on hand as ofDecember 31, 2020. Actual redemptions during the year were appropriately recorded, whileaccrualatyear-endisyettobemade.
b. The company also has a two-year warranty on its products.The warranty estimate is at 8% of the peso sales, two thirds of which is expected to be incurred during the year of sale and one-third on the year following the year of sale.The summary of the company's total salesand actual warranty costs incurred for the past three years are presented below (Assumesalesweremadeevenlythroughouttheyear):
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2018 2019 2020 NetSales P4,000,000 4,525,000 5,275,000 Actualcostspaid 127,500 233,750 285,250 ThecompanyisyettoupdateitswarrantyliabilitiesasofDecember31,2020
c. The deferred tax liability, is net of a P50,000 deferred tax asset, and has resulted from excesstaxdepreciationoverfinancialdepreciationandisexpectedtoreversethefollowingyear.
d. The 20% Notes payable was to a bank and was originally dated April 1, 2018 with a 3 yearterm with interest payable annually every April 1. On December 31, 2020, the companyentered into an agreement with the bank to refinance the notes payable by issuing another 5year notes payable, the proceeds of which shall be used to refinance the obligation maturingcurrently.As part of the agreement, the company is to offer an asset as a security/collateralon the loan and that the loan amount will be set at 75% of the fair market value of the assetbeing offered as collateral.As ofDecember 31,2020 the assetoffered as collateralhad afair market value of P600,000. Due to the nature of the asset, its fair market value is notexpectedtomateriallychangeatanytimeuptotheexecutionoftherefinancingagreement.
e. The 12% bonds payable matures at the rate of P200,000 annually every December 31.Interests are also payable every December 31. The last P200,000 bonds will be paid onDecember31,2026.
1.What is the correct balance of the accounts payable? *COMPUTE
2.What is the correct estimated premiums liability as of December 31, 2020? *COMPUTE
3.What is the correct estimated warranties payable as of December 31, 2020? *COMPUTE
4.How much should be presented as current liabilities in the December 31, 2020 statement of financial position? *COMPUTE
5.How much should be presented as non-current liabilities in the December 31, 2020 statement of financial position? *
Answered by J.Christopher
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