1 Net premium expense (50 + 5 - 10) 45

2017 Estimated premium redemption (2M x 30% / 10) 60,000

Less: 2017 Premiums distributed (400k / 10) 40,000
Balance 20,000
2018 Estimated premium redemption (2.5M x 30% / 10) 75,000
Total 95,000
Less: 2018 Premiums distributed (700k / 10) 70,000
Balance 25,000

2017 Prem. Expense (60,000 x 45) 2,700,000

12/31/17 Premium Liability (20,000 x 45) 900,000

2018 Prem. Expense (75,000 x 45) 3,375,000

12/31/2018 Premium Liability (25,000 x 45) 1,125,000

2 Stand alone price of sale 7,000,000

Stand alone price of points (10,000 x 100) 1,000,000
Total FV of "combined contract" 8,000,000

Allocation of sales proceeds:

Sale of goods and services (7M x 7/8) 6,125,000

Sale of points (7M x 1/8) 875,000
Total 7,000,000

Journal entry:
Cash (DR) 7,000,000
Sales (CR) 6,125,000
Deferred income from loyalty points (CR) 875,000

Sales 6,125,000
Income from loyalty points redeemed (875k x 4.8k/8k) 525,000
Total income - 2017 6,650,000

Total points earned as of 2018 ((4,800 + 2,400) / 9,000) * 875K 700,000

Less: 2017 revenue from points 525,000
2018 Revenue from points 175,000

Journal entry:

Unearned revenue for points 175,000

Revenue from points 175,000

3 2016 Warranty expense (5M x (4% + 6%)) 500,000

 Less: Warranty expenditures 150,000
Warranty liability 12/31/17 350,000
2018 Warranty expense (6M x (4% + 6%)) 600,000
Total 950,000
Less: Warranty expenditures 550,000
Warranty liability 12/31/18 400,000

4 20% Probability of payment (20% x 200,000) 40,000

80% Probability of payment (80% x 100,000) 80,000
Total estimated payment 120,000

Provision before risk adjustment (120,000 x 70%) 84,000

Adjustment for risk (7% x 84,000) 5,880
Total 89,880
PV factor 0.95
2017 Carrying amount for provision 85,386

5 Loss net of reimbursement that is "virtually certain" 250,000

Provision (reimbursement as a rule is not netted against provisions) 1,250,000

6 Disclosure of contingent asset 1,000,000

7 GC payable 1/1 1,500,000

GC sold 5,000,000
GC redeemed (4,000,000)
Expected GCs not to be redeemed (300,000)
GC payable 12/31 2,200,000

8 Advances 1/1 1,100,000

Advances received 1,800,000
Orders shipped (1,600,000)
Orders cancelled (400,000)
Advances 12/31 900,000

9 Subscription advances 1/1 1,700,000

Cash receipts 2,100,000
Advances applied to revenue (1,500,000)
12/31 Balance 2,300,000

10 Monthly collections (3.6M / 12 mos) 300,000

12/31 deferred revenue (3 mos. X 300,000) 900,000

11 Computation of revenues earned

2017
1st year from 2017 collections (500 x 40% / 2) 100,000
1st year from 2017 collections (500 x 40% / 2)
1st year from 2018 collections (500 x 60% /2)
2nd year from 2017 collections (600 x 40% / 2)
2nd year from 2017 collections (500 x 40% / 2)
1st year from 2018 collections (600 x 40% / 2)
2nd year from 2018 collections (600 x 60% / 2)
2nd year from 2018 collections (600 x 60% / 2)
Total revenue from service contracts 100,000
1. A

12/31/17 Unearned service revenue (500 - 100) 400,000

12/31/18 USR (400 + 600 - 370) 630,000

D

A
A
B

2018 2019 2020

 100,000
150,000
120,000
150,000
120,000
180,000
180,000
370,000 450,000 180,000
2. B

B
1 Issue price 5,500,000
Accrued interest (5,000,000 x .12 X 4/12) 200,000
Total amount received 5,700,000
Less; Bond issue cost 400,000
Net amount received 5,300,000

2 Premium from issue price (10% x 5M) 500,000

Less: Bond issue cost 1,100,000
Net discount on BP (600,000)

3 Issue price 4,695,000

Less: Discount amortization
Effective interest (469,500M x 10%) 469,500
Less: Nominal interest (500T x 9%) 450,000 19,500
Carrying amount 12/31/17 4,714,500

3 Issue price 5,775,000

Less: Bond issue cost 100,000
Initial carrying amount of bonds payable 5,675,000
Add: Discount amortization
Nominal interest (5M x 10%) 500,000
Less: Effective interest (5.675M x 8%) 454,000 46,000
Carrying amount 12/31/17 5,629,000

4 Issue price 5,500,000

Less: MV of bonds ex-warrants 4,800,000
Value assigned to warrants 700,000

Exercise price (50,000 shares x 120) 6,000,000

Share warrants outstanding transfered to SP 700,000
Total 6,700,000
Less: PV of shares issued 5,000,000
Total share premium 1,700,000

5 Issue price 5,450,000

Less: MV of bonds ex-warrants (PV of CFs apprach) 4,830,000
Value assigned to warrants 620,000

6 Issue price 5,500,000

Less: MV of bonds ex-warrants 4,600,000
Equity component 900,000

7 Carrying amount of bonds 6,000,000

Less: Par value of shares 2,500,000
Difference 3,500,000
Equity component from issuance of convertible bonds 1,500,000
Total 5,000,000
Less: Stock issue cost 100,000
Share premium from issuance 4,900,000
C

A
C

B
B

C
C
1 Annual Rentals 1,500,000
Guaranteed residual value 500,000
PV of an ordinary annuity 3.60
PV of 1 0.57

Gross Investment 8,000,000 B

Less: Net Investment / PV of GI 5,685,000 B
Financial Revenue 2,315,000 A

Interest Income (5.685M x 12%) 682,200 A

Sales revenue 5,685,000

Less: COS (4M + 200T) 4,200,000
Profit from sale 1,485,000 A

3 Annual Rentals in ADVANCE 900,000

Unguaranteed residual value 600,000
Cost of the asset 5,250,000
Implicit rate 12%

Gross Investment 7,800,000 B

Less: Net Investment and Cost of Asset + Direct cost 5,250,000 B
Financial Revenue 2,550,000 A

Net Investment before first payment 5,250,000

Less: First payment in advance 900,000
Balance 4,350,000
Implicit rate 0.12
Interest income 522,000 B

2 Net investment and cost of the asset 3,165,000

Less: PV of Unguaranteed residual value 285,000
PV of rentals 2,880,000
Divide by PV factor 3.60
Annual rentals 800,000 C

4 Net investment and cost of the asset 2,300,000

Divide by PV factor 4.60
Annual rentals 500,000 A

GI (500,000 x 6) 3,000,000
Less: NI 2,300,000
Total Financial Revenue 700,000 C
1 Total principal 5,400,000
Less: Sept. 1, 2018 principal payment 1,800,000
Balance 3,600,000
2017 Accured interest (5.4M x 12% x 4/12) 216,000 B

Jan. - Aug. (5.4M x 12% x 8/12) 432,000

Sept. - Dec. 144,000
2018 Interest Expense 576,000 A

2 Principal 5,000,000
Rate 12.00%

Accured interest on Dec. 31, 2017 (5M x 12% x 10/12) 500,000

Interest for Jan. and Feb 2018 (5M x 12% x 2/12) 100,000
Total 600,000
Accured interest for March to Dec. 2018 (5.6M x 12% x 10/12) 560,000
Total accrued interest on Dec. 31, 2018 1,160,000 B

3 Principal of notes payable 1,500,000

Less: Carrying amount of land 1,000,000
Gain on extinguishment of debt 500,000 C

Principal of notes payable 1,500,000

Less: FV of land 900,000
Gain on restructuring of debt 600,000 A

FV of land 900,000
Less: Carrying amount of land 1,000,000
Loss on (as if) sale or exchange (100,000) A

4 Principal of notes payable 5,000,000

Interest payable 500,000
Total amount of obligation extinguished 5,500,000
Less: Fair value of shares issued (70 x 50,000) 3,500,000
Gain on extinguishment of debt 2,000,000 A

Principal of notes payable 5,000,000

Interest payable 500,000
Total amount of obligation extinguished 5,500,000
Less: Fair value of liability 4,000,000
Gain on extinguishment of debt 1,500,000 B

Principal of notes payable 5,000,000

Interest payable 500,000
Total amount of obligation extinguished 5,500,000
Less: Par value of shares issued (50 x 50,000) 2,500,000
Share premium 3,000,000 A

5 New principal 4,000,000

New annual interest (4M x 8%) 320,000
PV of 1 at 10% for 3 periods 0.75
PV of an ordinary annuity at 10% for 3 periods 2.49

PV of principal 3,000,000
PV of interest 796,800
PV of future cash flows based on modified terms 3,796,800

Principal of notes payable 5,000,000

Interest payable 500,000
Total amount of obligation extinguished 5,500,000
Less: PV of future cash flows 3,796,800
Gain on extinguishment of debt 1,703,200 A

Face value of modified NP 4,000,000

Less: PV of NP 3,796,800
Discount 203,200 D

2018 interest expense 379,680 B

Carrying amount Jan. 1, 2018 3,796,800

Add: Amortization
Effective 379,680
Nominal 320,000 59,680
Carrying amount Dec. 31, 2018 3,856,480 C

If US GAAP, the absolute cash flows is used

Principal of notes payable 5,000,000

Interest payable 500,000
Total amount of obligation extinguished 5,500,000
Less: Modified cash flows (4M + (320k x 3)) 4,960,000
Gain on restructuring 540,000 D
1 Taxable income 7,000,000
Tax rate 30%
Current tax expense 2,100,000 A

2 Taxable income 5,500,000

Tax rate 30%
Current tax expense 1,650,000
Income tax benefit (500,000 x 30%) -150,000
Total tax expense 1,500,000 B

3 Accounting income 20,000,000

Future taxable amounts (3,000,000)
Future deductible amounts 1,000,000
Taxable income 18,000,000
Tax rate 30%
Current tax expense 5,400,000 D

Def'd tax expense (3M x 30%) 900,000

Income tax benefit (1M x 30%) -300,000
Net Def'd tax exp. 600,000 C

4 Current tax expense 2,100,000

Income tax benefit (2M x 25%) -500,000
Total tax expense 1,600,000 D

5 Decrease in deferred tax asset 150,000

Increase in deferred tax liability 300,000
Deferred tax expense 450,000 B

6 Accounting income 9,000,000

Nontaxable interest -1,000,000
Accounting income subject to tax 8,000,000
Future taxable amounts (2,000,000)
Future deductible amounts 1,500,000
Taxable income 7,500,000
Tax rate 30%
Current tax expense 2,250,000 A
Deferred tax exp and liab. (2M x 30%) 600,000 A
Tax benefit and def'd tax asset (1.5M x 30%) -450,000 B
Total tax expense 2,400,000 B

7 Difference
Property 3,000,000
Plant and Equipment 1,000,000
Total 4,000,000
Tax rate 30%
Deferred tax liability 1,200,000 A
Inventory (1,500,000)
Accounts receivable (600,000)
Liabilities (500,000)
Total -2,600,000
Tax rate 30%
Deferred tax asset -780,000 B
1 FVPA (DR) 10,000,000
PBO (CR) (13,000,000)
Accrued benefit cost under PAS 19R (3,000,000) A

Current SC 2,500,000
Past SC 1,000,000
Total service cost 3,500,000

Interest expense (13M x 10%) 1,300,000

Interest income (10M x 10%) (1,000,000)
Net interest 300,000

Service cost 3,500,000

Net interest 300,000
Benefit expense 3,800,000 A

Actual return 1,500,000

Less: Interest income 1,000,000
Remeasurement gain on PA 500,000
Decrease in PBO 400,000
Total remeasurement gain (CR) 900,000 C

FVPA 1/1 10,000,000

Contributions 3,500,000
Benefits paid (3,000,000)
Actual return 1,500,000
FVPA 12/31 12,000,000 B

PBO 1/1 13,000,000

Current service cost 2,500,000
Past service cost 1,000,000
Interest expense 1,300,000
Benefits paid (3,000,000)
Decrease in PBO (400,000)
PBO 12/31 14,400,000 A

FVPA 12/31 12,000,000

PBO 12/31 (14,400,000)
Accrued benefit cost (2,400,000) C

Alternative solution or approach

BE 3,800,000
RG in OCI (900,000)
Net Defined Benefit Cost 2,900,000
Contribution (3,500,000)
Debit adjutment to Accrued benefit cost (600,000)
Accrued benefit cost 1/1 3,000,000
Accrued benefit cost 12/31 2,400,000
2 Current SC 1,000,000
Interest expense (5M x 10%) 500,000
Interest income (6M x 10%) (600,000)
Interest on beginning effect of asset ceiling (300k x 10%) 30,000
Benefit expense 930,000 A

Actual return 400,000

Less: Interest income 600,000
Remeasurement loss on PA (200,000)

Increase in effect of asset ceiling (800k - 300k) (500,000)

Less: Interest on beginning effect of asset ceiling (300k x 10%) 30,000
Remeasurement loss on net increase of asset ceiling (470,000)

Net (total) remeasurement loss (670,000) A

BE 930,000
RL in OCI 670,000
Net Defined Benefit Cost 1,600,000 A
Contribution 2,100,000
Debit adjutment to Accrued benefit cost 500,000
Prepaid benefit cost 1/1 700,000
Prepaid benefit cost 12/31 1,200,000 B

3 Termination benefit (120 x 20,000) 2,400,000 A

Total benefit including termination benefit 60,000

Less: Termination benefit 20,000
Short-term benefit 40,000
Employees 20
Total 800,000 D