Determine the following as a result of your audit:a. How much of the notes payable is reported in the non-current liabilities section of the statement of financial position as of December 31, 2023?b. How much is the correct interest expense for the year ended December 31, 2024? show solution: Case 2- Audit of Non-Current LiabilitiesBubble Inc. has the following information about the notes payable as of December 31, 2023:The company bought land and usable building by paying a down payment of P1,500,000 and issuing a notepayable of P5,000,000 and bears interest at 8%. The note is dated April 1, 2022, and is payable in five annualinstallments of P1,000,000. The interest payment is based on outstanding balance and the first principal andinterest payment were made on April 1, 2023. The effective interest rate when the note was issued was 6%.Your client provided the following entries in relation to the transaction:DateParticularsApril 1, 2022April 1, 2023Land and buildingCashNotes payableTo record purchase of land and buildingDebit6,500,000Notes payableInterest expenseCashTo record payment of principal installment and interest due1,000,000400,000Credit1,500,0005,000,0001,400,000On the date of purchase, it was noted that land and building had a fair value of P5,000,000 and P2,000,000,respectively.

A note payable would be valued at the prevailing market interest rate to determine the fair value.…

Answered: Case 2- Audit of Non-Current…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Determine the following as a result of your audit:

a. How much of the notes payable is reported in the non-current liabilities section of the statement of
financial position as of December 31, 2023?

b. How much is the correct interest expense for the year ended December 31, 2024?

show solution:

Case 2- Audit of Non-Current Liabilities
Bubble Inc. has the following information about the notes payable as of December 31, 2023:
The company bought land and usable building by paying a down payment of P1,500,000 and issuing a note
payable of P5,000,000 and bears interest at 8%. The note is dated April 1, 2022, and is payable in five annual
installments of P1,000,000. The interest payment is based on outstanding balance and the first principal and
interest payment were made on April 1, 2023. The effective interest rate when the note was issued was 6%.
Your client provided the following entries in relation to the transaction:
Date
Particulars
April 1, 2022
April 1, 2023
Land and building
Cash
Notes payable
To record purchase of land and building
Debit
6,500,000
Notes payable
Interest expense
Cash
To record payment of principal installment and interest due
1,000,000
400,000
Credit
1,500,000
5,000,000
1,400,000
On the date of purchase, it was noted that land and building had a fair value of P5,000,000 and P2,000,000,
respectively.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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