Determine the following as a result of your audit: 1. How much is the correct carrying value of the note payable as of December 31, 2021? 2. How much is the correct interest expense that Latte recognized in the statement of comprehensive income for the period ending December 31, 2021? 3. How much of the note is reported in the current liability section in its December 31, 2021 statement of financial position? 4. How much of the note is reported in the non-current liability section in its December 31, 2021 statement of financial position? 5. What is your proposed adjusting journal entry (PAJE) as a result of your audit as of December 31, 2021?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Company as of December 31, 2021:
Case 4
Cefollowing information pertains to a note payable issued by Latte
Note payable from purchase of machinery
On April 1, 2020, Latte purchased a machinery by paying P500,000 and
issued P3,000,000, 5% note payable in four years. The note is payable in
series of payments every April 1 starting 2021 as follows:
April 1, 2021
April 1, 2022
April 1, 2023
P1,500,000
1,000,000
500,000
Interest on this note is payable every April 1 of each year based on
outstanding balance of the note. The effective interest when the note was
issued on April 1, 2020 is 7%.
Your test of journal entries revealed the following entries in 2020 and 2021
in relation to your audit of the notes payable:
Entry made on April 1, 2020 when the machine was purchased:
Machinery
Note payable
Cash
3,500,000
3,000,000
500,000
Transcribed Image Text:Company as of December 31, 2021: Case 4 Cefollowing information pertains to a note payable issued by Latte Note payable from purchase of machinery On April 1, 2020, Latte purchased a machinery by paying P500,000 and issued P3,000,000, 5% note payable in four years. The note is payable in series of payments every April 1 starting 2021 as follows: April 1, 2021 April 1, 2022 April 1, 2023 P1,500,000 1,000,000 500,000 Interest on this note is payable every April 1 of each year based on outstanding balance of the note. The effective interest when the note was issued on April 1, 2020 is 7%. Your test of journal entries revealed the following entries in 2020 and 2021 in relation to your audit of the notes payable: Entry made on April 1, 2020 when the machine was purchased: Machinery Note payable Cash 3,500,000 3,000,000 500,000
Chapter 3: Audit of Non-Current Liabilitiies
Entry made on December 31, 2020:
Interest expense
Interest payable
112,500
112,500
Entry made on April 1, 2021, when the payment is made:
Notes payable
Interest payable
Interest expense
Cash
1,500,000
112,500
37,500
1,650,000
The note payable was reported in its December 31, 2021 statement of
financial position in non-current liability section at P1,500,000.
Determine the following as a result of your audit:
1. How much is the correct carrying value of the note payable as of
December 31, 2021?
2. How much is the correct interest expense that Latte recognized in the
statement of comprehensive income for the period ending December
31, 2021?
3. How much of the note is reported in the current liability section in its
December 31, 2021 statement of financial position?
4. How much of the note is reported in the non-current liability section in
its December 31, 2021 statement of financial position?
5. What is your proposed adjusting journal entry (PAJE) as a result of your
audit as of December 31, 2021?
Transcribed Image Text:Chapter 3: Audit of Non-Current Liabilitiies Entry made on December 31, 2020: Interest expense Interest payable 112,500 112,500 Entry made on April 1, 2021, when the payment is made: Notes payable Interest payable Interest expense Cash 1,500,000 112,500 37,500 1,650,000 The note payable was reported in its December 31, 2021 statement of financial position in non-current liability section at P1,500,000. Determine the following as a result of your audit: 1. How much is the correct carrying value of the note payable as of December 31, 2021? 2. How much is the correct interest expense that Latte recognized in the statement of comprehensive income for the period ending December 31, 2021? 3. How much of the note is reported in the current liability section in its December 31, 2021 statement of financial position? 4. How much of the note is reported in the non-current liability section in its December 31, 2021 statement of financial position? 5. What is your proposed adjusting journal entry (PAJE) as a result of your audit as of December 31, 2021?
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