Ap Liabilities

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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

AUDITING PROBLEMS AUDIT OF LIABILITIES PROBLEM NO. 1 In the audit of the Heats Corporation’s financial statements at December 31, 2005, the chief accountant of the said corporation provided the following information: Notes payable: Arising from purchase of goods Arising from 5 year-bank loans, on which marketable securities valued at P600,000 have been pledged as security, P400,000 due on June 30, 2006; P100,000 due on Dec. 31, 2006 Arising from advances by officers, due June 30, 2006 Reserve for general contingencies Employees’ income tax withheld Advances received from customers on purchase orders Containers’ deposit Accounts payable arising from purchase of goods, net of debit balances of P30,000 Accounts receivable, net of credit balances P40,000 Cash dividends payable Stock dividends payable Dividends in arrears on preferred stock, not yet declared Convertible bonds, due January 31, 2007 First mortgage serial bonds, payable in semi-annual installments of P50,000, due April 1 and October 1 of each year Overdraft with Allied Bank Cash in bank balance with PNB Estimated damages to be paid as a result of unsatisfactory performance on a contract Estimated expenses on meeting guarantee for service requirements on merchandise sold Estimated premiums payable Deferred revenue Accrued interest on bonds payable Common stock warrants outstanding Common stock options outstanding Unused letters of credit Deficiency VAT assessment being contested Notes receivable discounted 304,000

500,000 50,000 400,000 20,000 64,000 50,000 170,000 360,000 80,000 100,000 200,000 1,000,000 2,000,000 90,000 390,000 160,000 120,000 75,000 87,000 360,000 120,000 210,000 400,000 500,000 200,000

On March 1, 2006, the P400,000 note payable was replaced by an 18-month note for the same amount. Heats is considering similar action on the P100,000 note payable due on December 31, 2006. The 2005 financial statements were issued on...