The following information are relevant to determine the proper amount to be reported on Son Goku’s December 31, 2025 financial statements:

Accounts payable:

• The unadjusted balance of accounts payable is P5,000,000.
• The balance is net of debit balances in a supplier’s account amounting to P200,000
• Purchase of goods to X Company for P300,000 was unrecorded. The merchandise was shipped December 31, 2025 FOB shipping point. The goods were received on January 3, 2026.
• Purchase of goods to Y Company for P120,000 was unrecorded. The merchandise was shipped on December 28, 2025, FOB destination. The goods were received on January 4, 2026.

Lawsuit:

• In October 2025, an employee was injured on the parking lot in an accident partially the result of his own negligence. The employee has sued for P500,000. The legal counsel believes it is probable that the outcome of the action will be unfavorable and that the settlement would cost the corporation from P200,000 to P300,000 with P240,000 the most probable amount within this range.

Warranty payable:

• Son Goku sells goods with a warranty under which customers are covered for the cost of any manufacturing defects that become apparent within the first year after the purchase. If minor defects were detected in all products sold, repair costs of P2,000,000 would result. If major defects were detected in all products sold, repair cots of P5,000,000 would result. The enterprise’s past experience and future expectations indicate that 65% of the goods sold have no defects, 25% of the goods sold have minor defects and 10% of goods sold have major defects.

QUESTIONS: 

• The correct balance of accounts payable at December 31, 2025 is ?

• The provision for litigation expenses that should be shown on the statement of financial position at December 31, 2025 ?

• The provision for warranties that should be shown on the statement of financial position at December 31, 2025 is ?

Answer rating: 100% (QA)

a The correct balance of accounts payable on December 31 2025 is P5240000 This is calculated by add... View the full answer