Answered: (1) What should be the joumal entry to…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 10MC

See similar textbooks

Related questions

Concept explainers

Question

100%

You were engaged to audit the financial statements of the Philippine Refining Company for the year ended December 31, 2021 with comparative figures for the year ended December 31, 2020. One of your concern regarding material risk is on their long-term liabilities related to the acquisition of machinery. Your examination of their books revealed that on December 31, 2019, Philippine Refining Company purchased machinery having a cash selling price of P85,933.75. The company paid P10,000 down and agreed to finance the remainder by making four equal payments each December 31 at the implicit interest rate of 12%. The accountant prepared a table of payment below for their long-term financing for you to test for the accuracy of their presentation and payment. Date Total Payment Interest Payment Principal Payment Carrying Valu 12/31/1910,000.00 75.933.75 12/31/20 28.095.49 9.112.05 18,983.44 $6.950.31 12/31/21 25.817.48 6.834,04 18,983.44 137.966.87 12/31/22/23.519.46 4,556,02 18.983.44 18.983.44 12/312321.256.05 2.272.61 18.983.44 The machine is being depreciated for 10 year life using straight-line method with no salvage value. You recompute the depreciation based on their record and it show an annual depreciation of P7,593.38. Interest expense was traced in the voucher register and check register with the amount the same in the table given by the accountant. The book of Philippine Refining Company was still open for the year ended December 31, 2021 report. As auditor of the company, prepare a working paper if you think the recognition and presentation is not correct and answer the following: (1) What should be the journal entry to record the acquisition of the machinery on December 31, 2019. (2) What would be the audit adjustment if there is? (3) Determine the amount of the annual payments to be made under the financing agreement

PHILIPPINE REFINING COMPANY
You were engagedto audit the financial statements of the Philippine Refining Company for
the year ended December 31,2021 with comparative figures forthe year ended December 31,
2020. One of your concemregarding materialrisk is on their long-tem liabilities related to
the acquisition of machinery.
Your examination oftheir booksrevealed that on December 31,2019, Philippine Refining
Companypurchasedmachinery having a cash selling price of PS5,933.75. The company paid
P10,000 down and agreed to finance the remainder by making four equalpayments each
December 31 at the implicit interest rate of 12%.
The accountant prepared a table ofpayment below fortheir long-tem financing foryouto
test forthe accuracy oftheir presentation and payment.
Total Payment
Interest Payment Principal Payment Canying Value
75,933.75
56,950.31
37,966.87
18,983.44
Date
12/31/19 10,000.00
12/31/20
18,983.44
18,983.44
18,983.44
18,983.44
28,095.49
9,112.05
6,834.04
4,556.02
2,272.61
12/31/21
25,817.48
12/31/22 23,539.46
12/31/23 | 21,256.05
The machine is being depreciated for 10 yearlife using straight-line method with no salvage
value.
Yourecompute the depreciation based on theirrecord andit show an annual depreciation of
P7,59338.
Interest expense was tracedin the voucherregister and check register with the amount the
same in the table given by the accountant.
The book of Philippine Refining Company was still open for the year ended December 31,
2021 report.
As auditor of the company, prepare a workingpaperif you think the recognition and
presentation is not correct and answerthe following:

(1) What should be the joumal entry to record the acquisition ofthe machinery on
December 31, 201I.
(2) What would be the audit adjustment if there is?
(3) Detemine the amount of the annualpayments to bemade underthe financing
agreement.
(4) Whatis the amount of the long-temliabilities as of December 31, 2021?
(5) Prepare the audit adjustment at December 31, 2021 to corect the amount of
machinery, long-temliabilities, and otherrelated accounts.

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Audit procedures for items of Financial Statement

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions