Chapter 2: Audit of Current Liabilities "your audit procedure properly noted that inventories are correctly reported of year-any joy physical count and roll forward procedures "If was a certained that the suppliers date of invoice is also the date of shipment Breach of contract Grapefruit Corp. has a three-year, 51, long-term debt for P1,000,000 with a maturity date of November 1, 2023, On October 31, 2021. it breaches a covenant related to this debt and the loan becomes due on demand Grapefruit reaches an agreement with the lender on January 5, 2021.( provide a waiver of the breach. The financial statements are authorized for issue on March 11, 2022. A 10% notes payable issued on July 1, 2021 for P900,000 with a term of 5 years and due on July 1, 2026, Terms of the note give the holder the right to demand immediate payment if the company fails to make monthly interest payment within 10 days after the date of payment is due. As of December 31, 2021, Grapefruit is three months behind in paying is required interest payments, Refinancing agreement The company's P3,500,000, 4-year, 12% note payable dated January 1, 2019 pays Interest on semi-annually every June 30 and December 31 of each year. On December 31, 2021 the company has the discretion and intention to refinance the liability by issuing another long-term debt due on December 31, 2023. The refinancing materialized on January 15, 2022, few days after the end of the reporting period. Another P5,000,000, 5-year, 10% bonds payable due on June 30, 2022 was held by the company on December 31, 2021, Interest on this bond is payable annually every June 30. On December 30, 2021, the company entered into an agreement with bond holder to refinance the liability on a long-term basis by issuing an 11% 2-year, P5,000,000 bonds to be issued on January 1, 2022. Determine the following as a result of your audit: 1. How much is the correct balance of accounts payable as of December 31, 2021 as a result of cutoff procedure? 2. How much is total accrued interest payable as of December 31, 2021? 3. How much is the total current liabilities presented in its December 31, 2021 statement of financial position? Page |107Case 3 You are auditing Grapefruit Corp.'s current liability accounts. The following procedures were performed by your audit staff: Purchases and accounts payable cutoff The audit staff have rendered a purchases cut-off to ascertain the completeness of the company's accounts payable balance. The following is the summary of the entries 10 days before and after year-end and the audit observations: Purchases Journal Entries: Dec. 21 - Dec. 31, 2021: Receiving Report Suppliers Invoice Amount Shipment terms Date Date Dec. 22, 2021 Dec. 21, 2021 P120,000 Shipping point Dec. 23, 2021 Dec. 23, 2021 90,000 From Consignor Dec. 29, 2021 Dec. 27, 2021 240,000 Destination point Jan. 10, 2022 Dec. 29, 2021 120,000 Shipping point Jan. 10, 2022 Dec. 30, 2021 130,000 C. I. F. in transit Purchases Journal Entries: January 2 - January 10, 2022 Receiving Report Suppliers Invoice Amount Shipment terms Date Date Jan. 5, 2022 Dec. 29, 2021 P110,000 Destination point Jan. 7, 2022 Dec. 30, 2021 90,000 Shipping point Jan. 9, 2022 Jan. 6, 2022 300,000 Shipping Point