Variable consideration
• LO5–6
In January 2018, Continental Fund Services, Inc., enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1% of the client’s $150 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $2 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition?
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Intermediate Accounting
- Problem 25 Davao Bank loaned P7,500,000 to a borrower on January 1, 2018. The terms of the loan were payment in full on January 1, 2023, plus annual interest payment at 12%. The interest payment was made as scheduled on January 1, 2019. However, due to financial setbacks, the borrower was unable to make its 2020 interest payment and Davao Bank considers the loan impaired and projects the cash flows from the loan as of December 31, 2020. The bank has accrued the interest at December 31, 2019, but did not continue to accrue interest for 2020 due to the impairment of the loan. The projected cash flows are: Amount projected as of Dec. 31, 2020 500,000 1,000,000 2,000,000 4,000,000 Date of cash flow December31, 2021 December31, 2022 December31, 2023 December31, 2024 The present value at 12% is as follows: For one period 0.89 For two periods For three periods For four periods 0.80 0.71 0.64 Required: 1.Compute the impairment loss of the loan receivable on December 31,2020. 2.Prepare a table…arrow_forward20 U.S. Metallurgical Incorporated reported the following balances in its financial statements and disclosure notes at December 31, 2023 $ 400,000 320,000 Plan assets Projected benefit obligation U.S.M's actuary determined that 2024 service cost is $60,000. Both the expected and actual rate of return on plan assets are 9%. The Interest (discount) rate is 5%. U.S.M. contributed $120,000 to the pension fund at the end of 2024, and retirees were paid $44,000 from plan assets. Required: 1. What is the pension expense at the end of 2024? 2. What is the projected benefit obligation at the end of 2024? 3. What is the plan assets balance at the end of 2024? 4. What is the net pension asset or net pension liability at the end of 2024? 5. Prepare journal entries to record the (a) pension expense, (b) funding of plan assets, and (c) retiree benefit payments. Complete this question by entering your answers in the tabs below. Req 1 to 4 Req 5 1. What is the pension expense at the end of 2024? 2.…arrow_forwardProblem 12 On January 1, GEN enters into a contract with LORD for the sale of a high-end security scanner for P630,000. The contract includes a put option the obliges GEN to repurchase the scanner machine from LORD for P567,000 on or before December 31. The market value is expected to be P495,000 on December 31. LORD pays GEN P630,000 on January 1. The transaction should be accounted for as a: A. Sale C. No sale/lease B. Lease D. Cannot be determined Problem 13 Noreen INC a truck dealer, sells a truck on January 1, 2019, to Mendoza for P3,000,000. Noreen INC agrees to repurchase the truck on December 31, 2020 for P3,630,000. 1. Assuming a 10% is imputed in the agreement, how much is the liability of Tom Co on January 1, 2019? A. 1,500,000 C. 3,000,000 B. 1,815,000 D. 3,630,000 2. Using the information above, what is the interest expense for 2019? A. None C. 330,000 B. 300,000 D. 630,000 3. How much should NOREEN INC record interest and retirement of its liability to MENDOZA INC…arrow_forward
- Problem 19 Marianne Company is a dealer in equipment. On December 31, 2019, Marianne Company sold equipment in exchange for a noninterest bearing note requiring five annual payments of P1, 000,000. The first payment was made on December 31, 2020. The market interest for similar notes was 8%. The relevant present value factors are: PV of lat 8% for 5 periods PV of an ordinary annuity of 1 at 8% for 5 periods 0.68 3.99 In its December 31, 2020statement of financial position, what should Marianne report as note receivable? а. 4, 000,000 b. 3,990,000 с. 3,309,200 d. 4,309,200arrow_forwardAssignment 3 Ch.5 Name / ID/ Section / Q1/ Ipswich Corporation is investment opportunity with the expected net cash inflows of $300,000 for four years. The residual value of the investment, at the end of four years, would be $70,000. The company uses a discount rate of 14%, and the initial investment is $290,000. Calculate the NPV of the investment. considering an Present value of an ordinary annuity of $1: 12% 13% 14% 15% 0.893 0.885 0.877 0.87 1.69 1.668 1.647 1.626 2.402 2.361 .322 2.283 3.037 2.974 2.914 2.855 Present value of $1: 12% 13% 14% 15% 0.893 0.885 0.877 0.87 Q2/ A company is evaluating an investment. The company uses the straight-line method of depreciation. Use the following information to compute the accounting rate of return. Show your calculations and round to one decimal place. Project SR875,000 Investment Residual value Operating income Year I 120,000 Year 2 120,000 Year 3 120,000 Year 4 120,000 Year S Q3/ Your grandfather would like to share some of his fortune…arrow_forwardProblem 26 Jem Riane Delos Reyes Bank granted a loan of P3,000,000 to a borrower on January 1, 2021. The terms of the loan were payment in full on December 31, 2026 plus annual interest payment at 8% every December 31. The first interest payment was made on December 31, 2021. However, on December 31, 2021, due to financial difficulties, the borrower informed Freetown Bank that it would probably miss the interest payments for the next two years. After that, the borrower expects to resume the annual interest payment but the principal would be paid on December 31, 2027 or one year late with interest paid for that additional year. Accordingly, the payments from the borrower are scheduled as follows: Date of Flow Cash Flow Amount 12/31/2022 No interest payment Nil 12/31/2023 No interest payment Nil 12/31/2024 Interest payment P 240,000 12/31/2025 Interest payment 240,000 12/31/2026 Interest payment 240,000 12/31/2027 Interest payment 240,000 Principal payment 3,000,000 The…arrow_forward
- QUESTION 7 A company receives a 5-year $100 million loan commitment from Wells Fargo at a fixed rate of 4.5%. The up-front commitment fee is 40 basis points and the unused portion of the loan is charged 15 basis points. The bank borrows a total of $45 million at the beginning of the year and none thereafter. The following is true, except: The interest paid on the drawdown amount for the full year is $2,025,000. The interest rate paid on the drawdown amount for the full year is 4.90% The fee for the loan commitment for the full year is $400,000. The fee for the unused portion of the loan commitment for the full year is $82,500 QUESTION 8 A bank agrees to buy three-month forward €500,000 at $1.14/€ from its client and simultaneously sells three-month €500,000 at…arrow_forwardProblem 10 On December 31, 2020, Olaer Company received two P5,000,000 notes receivable from customers in exchanged for consulting services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 4% and payable at maturity. The note from Nazareno Corporation, made under customary trade terms, is due on October 1, 2021 and the note from Mudag Corporation is due on December 31, 2025. The market interest rate for similar notes on December 31, 2020 was 10%. The compound interest factors to convert future value into present value at 10% follow: present value of 1 due in nine months, 0.93, and present value of 1 due in five years, 0.62. 1. At what amounts should these two notes receivable be reported in Nazareno’s December 31, 2020 statement of financial position? 2. At what amounts should these two notes receivable be reported in Mudag’s December 31, 2020 statement of financial position?arrow_forwardProblem 18-6 NPV of Loans The CFO of Kendrick Enterprises, is evaluating a 10-year, 7 percent loan with gross proceeds of $5,800,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 22 percent and the loan will not increase the risk of financial distress for the company. a. Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the net present value of the loan including flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Net present value 627,346.30 b. Net present value $ 574,551.45 ×arrow_forward
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