CURRENT LIABILITIES, BOND PAYABLE, Problem 3

NOTES PAYABLE & DEBT RESTRUCTURE 1. Warranty Expense for 2019 (10% x 5M) 500,000

Problem 1 2. Warranty Expense for 2019 500,000

1. Cost of towel 50 Warranty Expenditure in 2019 (150,000)
Remittance from customer (10) Warranty Liability- December 31, 2019 350,000
Distribution Cost 5
Net Premium Cost 45 3. Warranty Expense for 2020 (10% x 6M) 600,000

Coupons to be redeemed in 2017 (2M x 30%) 600,000 4. Warranty Liability - Dec. 31, 2019 350,000
Coupons redeemed in 2017 (400,000) Warranty Expense for 2020 600,000
Coupons Outstanding- Dec. 31, 2019 200,000 Total 950,000
Warranty Expenditure in 2020 (550,000)
Premium Expense for 2017 (600,000/10 x 45) 2,700,000 Warranty Liability - December 31, 2020 400,000

2. Estimated liability- 12/31/19 Problem 4

(200,000/10 x 45) 900,000 Weighted Probabilities:
20% x 200,000 x 70% 28,000
3. Coupons to be redeemed in 2020 80% x 100,000 x 70% 56,000
(2,500,000 x 30%) 750,000 Provision before risk adjustment 84,000
Multiply by Risk Adjustment factor (100% + 7%) 1.07
Premium Expense for 2020 Adjusted Cash Flows 89,880
(750,000/10 x 45) 3,375,000 Multiply by PV of 1 at 5% for 1 period 0.95
Provision for Lawsuit (PV of cash Flows) 85,386
4. Coupons outstanding- Dec. 31, 2019 200,000
Coupons to be redeemed in 2020 (2.5Mx30%) 750,000 Problem 5
Total Coupons to be redeemed 950,000 Estimated Liability 1,250,000
Coupons Redeemed in 2020 (700,000) Participation Fee (250,000)
Coupons Outstanding- Dec. 31, 2020 250,000 Claim or reimbursement asset 1,000,000

Estimated liability- 12/31/18 Loss 250,000

(250,000/10 x 45) 1,125,000 Receivable 1,000,000
Liability 1,250,000
Problem 2 #
1. Product Sales 7,000,000 Problem 6
Points granted during the year (10,000 x 100) 1,000,000 D. The contingent asset is disclosed only. Since the case is
Total 8,000,000 settled on March 1, 2020 after the issuance of the 2019 financial
statements on February 1, 2020, the estimated amount of P1,500,000
Product Sales (7M / 8M x 7M ) 6,125,000 shall be disclosed.
Points (1M / 8M x 7M) 875,000
Total transaction price 7,000,000 Problem 7
Unearned revenue- beg. 1,500,000
Product Sales 6,125,000 Add: Gift Certificates sold 5,000,000
Revenue from points redeemed in 2019 Total 6,500,000
(4,800 / 8,000 x 875,000) 525,000 Less:Gift certificates redeemed 4,000,000
Total Revenue in 2019 6,650,000 Gift certificates expected not to be
Redeemed 300,000 4,300,000
Cash 7,000,000 Unearned Revenue- points 525,000 Unearned Revenue - end. 2,200,000
Sales 6,125,000 Sales 525,000
Unearned Revenue- points 875,000 #
# Problem 8
Advances from customers- beg. 1,100,000
2. Points redeemed in 2019 4,800 Add: Advances received with orders 1,800,000
Points redeemed in 2020 2,400 Total 2,900,000
Total Points redeemed to Dec. 31, 2020 7,200 Less:Advances applied to orders shipped 1,600,000
Advances applicable to orders canceled 400,000 2,000,000
Cumulative revenue on Dec. 31, 2020 Advances from customers - end. 900,000
(7200/9000 x 875,000) 700,000
Revenue from points recognized in 2019 (575,000) Problem 9
Revenue from points earned in 2020 175,000 Subscriptions collected in advance - 1/1/19 1,700,000
Cash Receipts from subscribers in 2010 2,100,000
Unearned Revenue-points 175,000 Total 1,800,000
Sales 175,000 Subscription revenue credited in 2019 (1,500,000)
# Subscription collected in advance- 12/31/19 2,300,000
Problem 10 Problem 16: (Cont.)
Monthly subscriptions (3,600,000/12) 300,000 2. Total Proceeds (5,000,000 x 110%) 5,500,000
FV (4,800,000)
The subscriptions after the Sept. 30 cut-off are: Equity Component 700,000
October 300,000
November 300,000 Cash 5,500,000
December 300,000 Discount of BP (5M-4.8M) 200,000
Deferred Revenue- 12/31/19 900,000 Bonds Payable 5,000,000
Share Warrants Outstanding (APIC) 700,000
Problem 11 #
2019: (40% x 500,000) 200,000 3. Cash (5000 x 10 x 120) 6,000,000
2020: (60% x 600,000) 360,000 Share warrants outstanding 700,000
Total contracts sold in 2019 560,000 Ordinary Share Capital (5Kx10 x 100) 5,000,000
Share Premium 1,700,000
Since the contracts are sold, only 1/2 of 40% is earned in 2019 and #
1/2 will be earned in 2020. Problem 17
1/2 of the 60% will be earned in 2020 and 1/2 will be earned in Issue Price of bonds with warrants (5M x 109%) 5,450,000
2021. Present Value of Bonds Payable 4,830,000
Residual Amount allocated to warrants 620,000
1. Contract Revenue for 2019 (200K x 1/2) 100,000
Problem 18
2. Total contracts sold 500,000 Issue Price of bonds with conversion privilege
Contract revenue for 2019 100,000 (5,000,000 x 110) 5,500,000
Deferred contract revenue- 12/31/19 400,000 Market value of bonds without conversion
Privilege 4,600,000
3. Remaining 1/2 of 2019 (200,000 x 1/2) 100,000 Equity Component- Share Premium 900,000
First 1/2 of 2020 (360,000 x 1/2) 180,000
Total contract revenue in 2020 280,000 Problem 19
Revenue earned 2021 360,000

4. Revenue- 2020 (100,000 + 360,000) 260,000

Revenue- 2021 (360,000) 360,000
Unearned Contract Revenue- 12/31/20 620,000

Problem 12 Problem 20
Issue Price (5,000,000 x 110%) 5,500,000 1. NP- Sept 1, 2018 5,400,000
Accrued interest from Nov. 1 to March 1, 2019 Payment on Sept 1, 2019 (1,800,000)
(5,000,000 x 12% x 4/12) 200,000 NP- Sept 1, 2019 3,600,000
Total 5,700,000 Accrued interest payable from September 1 to December 31,
Bond Issue Cost (400,000) 2019 (3,600,000 x 12% x 4/12) 144,000
Net Cash Received from Bond Issuance 5,300,000
2. Jan 1- Aug 31, 2019 (5.4Mx12%x8/12) 432,000
Problem 13 Sept 1- Dec 31, 2019 144,000
Premium (5,000,000 x 10%) 500,000 Total Interest Expense 2019 288,000
Bond Issue Cost (1,100,000)
Discount 600,000 D.

Problem 14
CA- 1/1/19 4,695,000 Problem 21
Discount Amortization: Accrued interest from March 1, 2019 to February 28, 2020
Interest Expense (4,695,000 x 10%) 469,500 (5,000,000 x 12%) 600,000
Interest Paid (5,000,000 x 9%) 450,000 19,500 Accrued interest from March 1 to December31, 2020
CA- 12/31/19 4,714,500 (5,000,000 + 600,000 x 12% x 10/12) 560,000
Accrued interest payable- Dec. 31, 2020 1,160,000
Problem 15
Date Interest Interest Amortization Carrying Problem 22
Expense Paid Amount 1. CA of liability 1,500,000
1/1/19 5,675,000 CA of real estate 1,000,000
12/31/19 454,000 500,000 46,000 5,629,000 Gain on Extinguishment 500,000
12/31/20 450,320 500,000 49,680 5,579,320 2. CA of liability 1,500,000
FV of real estate 900,000
Problem 16 Gain on extinguishment 600,000
1. Issue price of bonds payable- equal to market value without 3. FV of real estate 900,000
the warrants P4,800,000 CA of real estate 1,000,000
Loss on transfer of real estate (100,000)