You are auditing the financial statements of Hailey Launders, Inc., a company which carries a wide variety of laundry appliance and supplies, for the year ended December 31,2020. Information about the company’s various liability accounts are as follows:

a) Premium items are being offered to its Class A (residential use) washing machines and dryers. Customers shall receive a coupon for each ₱50 spent on Class A laundry appliance. Customers may exchange 400 coupons and ₱1,000 for a dryer. Hailey Launders, Inc. pays ₱5,100 for each dryer and estimates that 60% of the coupons given to customers will be redeemed. A total of 4,500 dyers to be used on the premium program were purchased during the year end there were 1,680,000 coupons redeemed during the year.

b) Class B laundry appliances were sold with a two-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 1% of sales to be incurred on the year of sales, and 2% of sales to be incurred on the year following the year of sale. Replacement parts and labor for warranty work totaled ₱1,640,000 during 2020.

c) The company provides key employees 5% bonus based on the net income of the company after tax. The same is yet to be accrued at year end.

d) Hailey Launders, Inc. uses the accrual method to account for the warrant and premium costs for financial reporting purposes. Hailey Launders, Inc.’s sales for 2020 totaled ₱280,000,000, 60% of which is attributed to Class A laundry appliance sales.

e) The company reported the following balances at year end:

• Inventory of premium items - ₱1,530,000

• Premium expense - ₱17,220,000

• Warranties expense - ₱1,640,000

• Net income, before 30% income tax and before any adjustments - ₱80,614,000

Based on the above information and the result of your audit, answer the following:

1. How much is the premium liability as of December 31, 2020?

2. How much is the warranty liability as of December 31, 2020?

3. How much is the bonus liability as of December 31, 2020?

4. How much is the income tax expense for the year ended December 31, 2020?

5. How much is the net income after tax for the year ended December 31, 2020?

Answer rating: 100% (QA)

Estimated premium liabilityend of 2019 3444000 Warranty Expense 3360000 Amount of adjustment to premium expense 4444000 Adjusted Net Income before Bon... View the full answer