Lobrigas, Claudine L.

BSIA-IV

Intermediate Accounting 2

Problem #1:

1. D
What amount should be reported as premium expense for 2021?
(40,000 coupons/5 = 8,000 distribution)
Premium expense = 8,000 x P20 = 160,000
2. B
What is the estimated liability for premium claims outstanding on December 31, 2021?

Coupons to be redeemed (60% x P160,000) 96,000

Less: Coupons redeemed 40,000

Balance 56,000

Premiums to be distributed (56,000/5) 11,200

Estimated liability (11,200 x P20) 224,000

Problem #2:

1. D
What amount should be reported as premium expense for 2021?
500,000 x 80% = 400,000 coupons/10 = 40,000
Premium expense = 40,000 x P50 = 2,000,000
2. C
What amount should be reported as liability for unredeemed coupons on December 31,
2021?

Coupons to be redeemed 300,000

Less: Coupons redeemed (80% x 300,000) 240,000

Balance 60,000
 Premium to be distributed 60,000

Estimated liability (60,000 x P50) 3,000,000

Problem #3:

1. C
What amount of the transaction price should be allocated to the points?

Allocation of transaction Price

Product sales 6,800,000

Points – stand-alone selling price (60,000 x P20) 1,200,000

Total 8,000,000

Product sales (6,800,000/8M x 6,800,000) 5,780,000

Points (1,200,000/8M x 6,800,000) 1,020,000

Total transaction price 6,800,000

2. B
What is the revenue earned from loyalty points for 2021?
Redemption of 28,800 points in 2021:
(28,800/60,000 x 1,020,000) = 489,600

3. A
What is the revenue earned from loyalty points for 2022?

Points redeemed in 2021 28,800

Points redeemed in 2022 9,000

Total point redeemed to Dec. 31, 2022 37,800

Cumulative revenue on December 31, 2022

 (37,800/54,000 x 1,020,000) 714,000

Revenue recognized in 2021 (489,600)

224,400

Problem #4:

1. B
What amount should be recognized as product sale revenue?
2. B
What is the net revenue from points?

Selling Price Fraction Allocated

Product sales 4,500,000 45/50 4,050,000

Points (5,000 x 100) 500,000 5/50 450,000

4,500,000

Revenue from points 450,000

Payment to airline (5,000 x 60) (300,000)
Net revenue from points 150,000

Problem #5:
Required: Prepare journal entries from 2021 to 2024

Allocation for transaction price

Product sales P7,000,000

Awards credit (stand-alone selling price) P1,000,000

Total P8,000,000

Product sales (7,000,000/8,000,000 x 7,000,000) P6,125,000

Awards credit (1,000,000/8,000,000 x 7,000,000) P875,000

Total transaction price P7,000,000

2021 To record the Initial sales:
Cash P7,000,000
Sales P6,125,000
Unearned revenue - award credits P875,000

Redemption of 15,000 award credits:

Unearned revenue - award credits P328,125
Sales P328,125
Revenue to be recognize in 2021 (15,000/40,000 x
875,000) = P328,125

2022 Redemption of 7,950 award credits:

Unearned revenue - award credits P144,375
Sales P144,375

Points redeemed, 2021 15,000

Points redeemed, 2022 7,950

Total points redeemed in 2022 22,950

Cumulative revenue in 2022 P472,500

(22,950/42,500 x 875,000)
Less: Revenue recognized - 2021 P328,125

Revenue to be recognized in 2022 P144,375

2023 Redemption of 2,550 award credits:

Unearned revenue - award credits P52,500
Sales P52,500

Points redeemed -2021 15,000

Points redeemed -2022 7,950
Points redeemed -2023 2,550

Total points to be redeemed in 2023 25,500

 Cumulative revenue -2023 P525,000
(25,500/42,500 x 875,000)
Less: Cumulative revenue -2022 P472,500

Revenue to be recognized in 2023 P52,500

2024 Redemption of 15,000 award credits:

Unearned revenue -award credits P262,500
Sales P262,500

Points redeemed -2021 15,000

Points redeemed -2022 7,950
Points redeemed -2023 2,550
Points redeemed - 2024 15,000

Total points to be redeemed in 2024 40,500

Cumulative revenue -2023 P787,500

(40,500/45,000 x 875,000)
Less: Cumulative revenue -2023 P525,000

Revenue to be recognized in 2024 P262,500