CASE 6

FRANKINCENSE COMPANY

Beginning Balance (60*20)+(35*10)

Leaves earned and CO (300*20)
Leaves used 970+(20*10)+(20*5)+(195*20)
Expired portion (1,550-970)
Ending Balance
Current Rate of Employees
Liability for CA

For used portion:

Liability for CA (970*600) 582,000
Compensation Expense (970*50) 48,500
Cash (970*650)

Liability for CA (5,170*650) 3,360,500

Cash (5,880*650)

For expired portion:

Liability for CA (600*475) 348,000
compensation Expense

Adjusting Entry:
Compensation Expense 3,900,000.00
Liab for CA

CASE 9
WINTERGREEN COMPANY

Unearned Premium Income (PFRS 15):

Total Proceeds (80,000*80) 6,400,000.00

FV of Main Product 6,400,000.00

FV of Premium (80,000*2*70%/5)*(960K/8K) 2,688,000.00
Total FV 9,088,000.00

Allocation:
Main product (6,400,0000/9,088,000)*6,400,000 4,507,042.25
Unearned Premium (22,400 units) 1,892,957.75

Actual redemption (84,000/5) 16,800.00 units

Unearned Premium, beg. 1,892,957.75

Earned portion (1,892,858*16,800/22,400) 1,419,718.31
Unearned Premium, 2021 473,239.44 1

Warranty Liability:
2020 2021
Units sold 3,000.00 4,300.00
Multiply by rate of possible return 70% 70%
Total Items Returned 2,100.00 3,010.00
Multiply by Estimated cost of repair 550.00 550.00
Warranty Expense 1,155,000.00 1,655,500.00

Beg. balance of warranty liab, 2021 (1.155M-520,000) 635,000.00

Add: Warranty expense, 2021 1,655,500.00
Less: Actual warranty cost -750,000
Warranty liability, 2021 1,540,500.00
 1,550 Employee who used 2021 CA:
6,000 300-30-35-20-20= 195
5,170
580
1,800
650
1,170,000.00 2

Compensation Expense
48,500 348,000
3,900,000.00
630,500 1 3,600,500.00

3,360,500

348,000

3,900,000.00

PAJE (Premium)
Correct Entry:

Cash 6,400,000.00
Sales 4,507,042.25
Unearned Premium revenue 1,892,957.75

Inventory of Premium 2,240,000.00

Cash 2,240,000.00
Unearned Premium Revenue 1,419,718.31
Premium Revenue 1,419,718.31

Cost of Premium 1,680,000.00

Inventory on Premium 1,680,000.00

PAJE (Premium)
Warranty expense 905,500
Retained Earnings 635,000
Warrant Liability 1,540,500.00

Entry per Client

Cash 6,400,000.00
Sales 6,400,000.00

Inventory of Premium 2,240,000.00

Cash 2,240,000.00

PAJE
Sales 1,892,957.75
Unearned Premium revenue 1,892,957.75

Unearned Premium Revenue 1,419,718.31

Premium Revenue 1,419,718.31

Cost of Premium 1,680,000.00

Inventory on Premium 1,680,000.00
CASE 10
HELICHRYSUM COMPANY

1 1,890,000 Total deposits liability (4,200+3,500)*900 6,930,000

Less: Returns in 2020 (2,500*900) 2,250,000
Less: Returns in 2021 (3,100*900) 2,790,000
Liability for container deposits 1,890,000

2 2,940,000 Unadjusted Balance 3,330,000

Orange- no adjustment 0
Lemon- Goods in transit FOB Destination (390,000)
Melaleuca Inc.- no adjustment 0
Adjusted Accounts Payable 2,940,000

3 600,000 Outstanding shares 400,000.00

Multiply by: Declared cash dividend 1.5
Dividends Payable 600,000

4 2,000,000.00 Probable CF if settled in court (2yrs)

1,600,000*25% 400,000.00
2,000,000*35% 700,000.00
2,400,000*40% 960,000.00
Total probable Cash Outflow excluding legal fees 2,060,000.00
Multiply: RAF 1.10
Adjusted Probable Outflow 2,266,000.00
Multiplied by PV Factor (1.03^-2) 0.9426
PV of probable CF 2,135,922.33
vs. lower of recorded provision 2,000,000.00

Disclosure: 400,000.00

5 5,142,857.14 Total FV of Warranty 6,000,000.00

Less: Earned portion 857,142.86
Unearned Warranty Revenue 5,142,857.14
 6 54,780.88 FV of Dolbeer 25,000,000.00
FV of mugs 100,000.00

Allocation:
MP 24,900,398.41
Premium (5,000 units) 99,601.59

Unearned Premium Revenue 54,780.88

7 60,000.00 Interest Payable 60,000.00

8 200,000.00 Liability on Purchase Commitment 200,000.00

9 490,000 Cost of fulfilling the contract 560,000.00

Penalties from failure to fulfill the contract 490,000.00
Lower

10 187,500 Liability for Compensated Absences 187,500.00

11 154,261 B= 0.03 [7,500,000 - B - 0.30 (7,500,000 - B)]

B= 0.03 (7,500,000 - B - 2,250,000 - 0.30B)
B= 0.03 (5,250,000 - 0.70B)
B= 157,500 - 0.021B
1.021B= 157,500
B= 154,260.53
Liability for Bonuses 154,260.53
12 13,799,398.55 Income Tax Payable 80,000
Liability for Deposits 1,890,000.00
Accounts Payable 2,940,000.00
Cash Dividends Payable 600,000.00
Liability for Damages 2,000,000.00
Unearned Warranty Revenue 5,142,857.14
Unearned Premium Revenue 54,780.88
Interest Payable 60,000.00
Liability on Purchase Commitment 200,000.00
Liability for Onerous Contracr 490,000.00
Liability for Compensated Absences 187,500.00
Liability for Bonuses 154,260.53
Trade and Other Payables 13,799,398.55
CASE 6
STAR LORD CORP.
1
Employees expected to receive options 500
Employees who left
Year 1 -20
Year 2
Year 3
Employees expected to leave in the remaining vesting period
Year 1 -75
Year 2
Year 3
Employees expected to receive options 405
Multiply by: number of options granted 100
Multiply by: FV of options date of grant 15
Total compensation expense 607,500
Multiply by: vesting period 1-Mar
Cumulative compensation expense 202,500
Less: Total compensation expense in prior years
Compensation expense - Current period 202,500

Number of shares vested 44,300

FV of shares 15
FV of shares 664,500
Share options outstanding 664,500
Share Premium -

1 202,500
2 195,500
3 266,500
4 -
 CASE 10
QUICKSILVER COMPANY
2 3 Date 65,000*1. Number of shares
500 500 12/31/2019 08*2
9,000*1.0 140,400
1/5/2020 8*2 19,440
-20 -20 Total
-22 -22 Divided by: months
-15 Average outstanding share

Net Income, 2020

-60 Less: Preferred dividends
Total
398 443 Divide by: Average outstanding share
100 100 Basic Earning per share
15 15
597,000 664,500 Retained Earnings, beg
2-Mar 1 Retained Earnings, end
398,000 664,500 Increase in retained earnings
202,500 398,000 Add: Dividends on ordinary shares
195,500 266,500 Dividends on preferred shares
Net Income

Number of shares
12/31/2020 159,840
1/2/2021 4,400
1/9/2021 -1,000
1/11/2021 1,000
Total
Divided by: months
Average outstanding share

2020
Net Income 1,345,040
Less: Preferred dividends -32,400
Total 1,312,640
Divide by: Average outstanding share 153,360
Basic Earning per share 8.56
 Months Total
12 1,684,800
8 155,520
1,840,320
12
153,360 1

1,345,040
-32,400
1,312,640
153,360
8.56 2

1,884,800
1,585,840
298,960
652,960
39,600
991,520 3

Months Total
12 1,918,080
11 48,400
4 -4,000
2 2,000
1,964,480
12
163,706.67 4

2021
991,520
-39,600
951,920
163,706.67
5.81 5
CASE 10
LORDE CO.
Year 1 1,000,000.00 Kirk De Jesus (2021)
Year 2 1,080,000.00 Salary 3,172,169.11
Year 3 1,166,400.00 FV Factor 4.32
Year 4 1,259,712.00 Total Salary 13,690,133.61
Year 5 1,360,488.96 Benefit Rate 0.05
Year 6 1,469,328.08 Annual Benefit Rate 684,506.68
Year 7 1,586,874.32 Years Earned 1.00
Year 8 1,713,824.27 To Date Benefit 684,506.68
Year 9 1,850,930.21 PV Factor 0.28
Year 10 1,999,004.63 Current SC 189,271.80
Year 11 2,158,925.00
Year 12 2,331,639.00 Jane Lucas (2021)
Year 13 2,518,170.12 Salary 3,172,169.11
Year 14 2,719,623.73 FV Factor 4.32
Year 15 2,937,193.62 Total Salary 13,690,133.61
Year 16 3,172,169.11 Benefit Rate 0.01
Annual Benefit Rate 68,450.67
Years Earned 1.00
To Date Benefit 68,450.67
PV Factor 0.28
Current SC 18,927.18
 Kirk De Jesus (2021) Total Benefits Expense - PL
Salary 3,172,169.11 Current SC- Kirk 189,271.80
FV Factor 4.32 Current SC- Jane 18,927.18
Total Salary 13,690,133.61 Total 208,198.98 1
Benefit Rate 0.05
Annual Benefit Rate 684,506.68 Total balance of DBO
Years Earned 16.00 DBO, end- Kirk 3,028,348.82
To Date Benefit 10,952,106.88 DBO, end- Jane 302,834.88
PV Factor 0.28 Total 3,331,183.70 2
DBO, end 3,028,348.82

Jane Lucas (2021)

Salary 3,172,169.00
FV Factor 4.32
Total Salary 13,690,134.00
Benefit Rate 0.01
Annual Benefit Rate 68,450.67
Years Earned 16.00
To Date Benefit 1,095,210.72
PV Factor 0.28
DBO, end 302,834.53
CASE 12
JAM LINER COMPANY
Financial Income 2,483,333.33
Permanent Differences -
Non-Taxable Income - 3
Non-Deductible Expense -
Financial Income after PD 2,483,333.33
Future Taxable Amount -
Future Taxable Amount - Reversal 2,766,666.67 4
Future Deductible Amount 1,300,000.00
Future Deductible Amount - Reversal - 1,550,000.00
Taxable Income 5,000,000.00

CASE 15
JOSEPH CO.
Financial Income 5,000,000.00
Permanent Differences
Non-Deductible Expense 150,000.00
Non-Taxable Income - 50,000.00
Financial Income after PD 5,100,000.00
Temporary Differences
Future Deductible Amount 400,000.00
Reversal of Future Taxable Amount 300,000.00
1 Taxable Income 5,800,000.00

CITE (5,800,000 x 40%) 2,320,000.00

CITE 2,320,000.00
4 Income Tax Payable 1,970,000.00
Cash 350,000.00

Deferred Tax Asset 160,000.00

DITE 160,000.00

Deferred Tax Liability 120,000.00

DITE 120,000.00

CITE 2,320,000.00
DITE - 280,000.00
5 TITE 2,040,000.00

2 DTA, end 640,000.00

3 DTL, end 200,000.00

Financial Income 5,000,000.00

TITE - 2,040,000.00
6 Net Income after Tax 2,960,000.00
CITE 1,500,000.00 Deferred Tax Liability
DITE - 755,000.00 1,400,000.00
TITE 745,000.00 830,000.00
2 570,000.00
Financial Income 2,483,333.33
TITE - 745,000.00 Cumulative Balance of FTA 1,900,000.00
Net Income after Tax 1,738,333.33 DTL, end 570,000.00

Deferred Tax Asset Cumulative Balance of FDA 1,500,000.00

525,000.00 DTA, end 450,000.00
390,000.00 465,000.00
450,000.00
CASE 5
APPLICATION COMPANY
Scenario A
1. Right of use asset -
2. Lease Liability 2,550,000
3. Gain (Loss) on rights transferred -
4. PAJE
Cash 2,550,000
Lease Liability 2,550,000

Scenario B
Annual Rent Payable 420,000
Multiplied by: PV factor 4.868419
Lease Liability 2,044,736

Fair Value Carrying Amount

Total 2,550,000 2,100,000
Rights retained 2,044,736 1,683,900
Rights transferred 505,264 416,100

1. Right of use asset 1,683,900

2. Lease Liability 2,044,736
3. Gain (Loss) on rights transferred 89,164
4. PAJE
Cash 2,550,000
Right of use Asset 1,683,900
Accumulate Depreciation 900,000
Equipment 3,000,000
Gains on rights transferred 89,164
Lease Liability 2,044,736

Scenario C
Lease Liability 2,044,736
Less: Additional Financing 300000
Rights retained 1,744,736

Fair Value Carrying Amount

Total 2,250,000 2,100,000
Rights retained 1,744,736 1,628,420
Rights transferred 505,264 471,580
1. Right of use asset 1,628,420
2. Lease Liability 1,744,736
3. Gain (Loss) on rights transferred 33,684
4. PAJE
Cash 2,550,000
Right of use Asset 1,628,420
Accumulate Depreciation 900,000
Equipment 3,000,000
Gains on rights transferred 33,684
Lease Liability 2,044,736

Scenario D
Lease Liability 2,044,736
Prepayments 150,000
Rights retained 2,194,736

Fair Value Carrying Amount

Total 2,700,000 2,100,000
Rights retained 2,194,736 1,707,017
Rights transferred 505,264 392,983

1. Right of use asset 1,707,017

2. Lease Liability 2,194,736
3. Gain (Loss) on rights transferred 112,281
4. PAJE
Cash 2,550,000
Right of use Asset 1,707,017
Accumulate Depreciation 900,000
Equipment 3,000,000
Gains on rights transferred 112,281
Lease Liability 2,044,736

Scenario E
Annual Rent Payable 300,000
Multiplied by: PV factor 4.868419
Lease Liability 1,460,526

Fair Value Carrying Amount

Total 1,500,000 2,100,000
Rights retained 1,460,526 2,044,736
Rights transferred 39,474 55,264

1. Right of use asset 2,044,736

2. Lease Liability 1,460,526
3. Gain (Loss) on rights transferred -15,790
4. PAJE
Cash 1,500,000
Right of use Asset 2,044,736
Accumulate Depreciation 900,000
Loss on rights transferred 15,790
Equipment 3,000,000
Lease Liability 1,460,526
 Gain
450,000
360,836
89,164

Gain
150,000
116,316
33,684
 Gain
600,000
487,719
112,281

Gain
-600,000
-584,210
-15,790