wv weet 1, What is the initial measurement of the investment property? : 198,900,000 198,000,000 176,800,000 180,000,000 | Boop 2. What is the initial measurement of the land to be accounted for as property, plant,and equipment? a. 4,400,000 b. 4,420,000 ce. 4,000,000 d. 4,430,000 3. What is the initial measurement of the building to be accounted for as property, plant and equipment? 17,690,000 17,600,000 17,680,000 16,000,000 Boop 4. What is the gain from the increase in fair value of investment property in 2013? a. 51,100,000 b. 27,000,000 c. 45,000,000 d. 26,100,000 What is the depreciation of the building for 20137 a. 353,600 b. 320,000 ¢. 352,000 d. 353,800CHAPTER 20 FUND AND OTHER INVESTMENTS Definition of fund The term “fund” is defined as cash and other assets set aside for a specific purpose either by reason of the action of management or by virtue of a contract or legal requirement. The specific purpose may be current or noncurrent. Fund may be in the form of cash, securities and other assets. Funds for current purposes include petty cash fund, payroll fund, interest fund, dividend fund, and tax fund. Such funds are classified as current assets. Funds for noncurrent purposes include sinking fund, preference share redemption fund, replacement fund, plant expansion fund, contingency fund and insurance fund. These funds are contemplated as long-term or noncurrent investment. Measurement of fund Long term fund shall be carried at the amount of cash plus the cost of securities adjusted for discount or premium amortization, and other assets in the fund. 864Sinking fund Sinking fund or redemption fund is a fund set aside for the liquidation of long term debt, more particularly long-term bonds payable. : The accounting for sinking fund depends on whether the fund is under the administration of the entity or under the charge of a trustee. Fund under the administration of the entity When the fund is under the administration of the entity, the entity records the fund transactions currently and thus makes a distinction whether the fund is in the form of cash, securities and other assets. Illustration An entity records sinking fund transactions currently and maintains a balance in the retained earnings appropriated for sinking fund account equal to the sinking fund. There is no trustee. 2013 Dec.31 Transferred P2,000,000 cash to the sinking fund: Sinking fund cash 2,000,000 Cash 2,000,000 Dec.31 Appropriated retained earnings for an amount equal to the fund: Retained earnings 2,000,000 Retained earnings appropriated for sinking fund 2,000,000 The appropriation of retained earnings is not automatic. This is a matter of accounting policy ———, 865— —— 2014 ( Apr. 1 Invested the sinking fund cash in P2,000,000 face value 12% bonds. The purchase price is equal to the face value. Interest is payable semiannually on April 1 and October 1. Sinking fund securities 2,000,000 Sinking fund cash 2,000,000 Oct. 1 Received interest.on the sinking fund securities, P120,000. Sinking fund cash 120,000 Sinking fund income 120,000 Dec.31 Transferred another P2,000,000 cash to the fund. Sinking fund cash 2,000,000 ° Cash 2,000,000 31 Interest accrued on the sinking fund securities for three months, P60,000 (P2,000,000 x 12% x 3/ 12). Accrued interest receivable 60,000 / Sinking fund income 60,000 31 Appropriated retained earnings for an amount equal to fund: Retained earnings 2,180,000 Retained earnings appropriated for sinking fund 2,180,000 Sinking fund cash 2,120,000 Sinking fund securities 2,000,000 Accrued interest receivable 60,000 Total sinking fund 4,180,000 Less: Appropriated retained earningsbalance 2,000,000 Additional appropriation 2,180,000 mes. i2015 Jan. 1 Apr. 1 July 1 Dec. 31 31 — Reversal of the accrued interest on sinking fund securities: Sinking fund income 60,000 Accrued interest receivable 60,000 Received semiannual interest on the sinking fund securities: Sinking fund cash 120,000 Sinking fund income 120,000 Payment of fund expenses, P20,000: Sinking fund expense 20,000 *Sinking fund cash 20,000 Received the semiannual interest on the sinking fund securities: Sinking fund cash 120,000 Sinking fund income 120,000 Sold the sinking fund securities at 105 or P2,100,000: Sinking fund cash 2,100,000 Sinking fund securities 2,000,000 Gain on sale of securities 100,000 Transferred another P2,000,000 to the fund: Sinking fund cash 2,000,000 Cash 2,000,000 Appropriated retained earnings fc Appropriate igs for an amount equal Retained earnings 2,260,0 Retained earnings “eee appropriated for sinking fund 2,260,000 7 260, Sinking fund cash : c . 6,440, Less: Appropriated retained earnings balance 4, 80) 000 Additional appropriation 2,260,000 867 a2016 July 1 Retired bonds payable of P5,000,000 plus accrued interest of P500,000: Bonds payable 5,000,000 Interest expense 500,000 Sinking fund cash 5,500,000 1 Return of the residual sinking fund cash to the general fund: Cash 940,000 Sinking fund cash 940,000 1 Release of the appropriated retained earnings balance to the unappropriated balance: Retained earnings appropriated for sinking fund 6,440,000 Retainedearnings | 6,440,000 Fund under the administration of a trustee If the fund is under the administration of a trustee, fund transactions are/not)currently recorded by the entity. Individual transactions pertaining to purchase and sale of securities, and to earnings and expenses of the fund are recorded by the entity periodically when report is received from the trustee. ~~ Moreover, no distinction is made whether the sinking fund is in the form of cash, securities or other assets. The account “sinking fund - trustee” is used, > afw ~- Wr art Illustration 1. Contributed P2,000,000 to the sinking fund which is under the charge of a trustee. Sinking fund —- trustee Cash 2,000,000 2,000,000 2. Received a periodic report from the trustee that P1,000,000 was invested in securities and P500,000 in money market placements. The sinking fund is composed of the following: Cash Securities Money market placement No entry is necessary. 500,000) 1,000,000 500,000 3. Received a periodic report from the trustee that the securities were sold for P1,300,000 and interest received on the money market placement was P50,000. Sinking fund cash Money market placement Total Receipts: Sale of securities Interest.on money market placement. Total Disbursements: ‘Trustee’s fee Administrative expenses Sinking fund balance Cash Money market placement Total Sinking fund — trustee Sinking fund expenses Sinking fund income Gain on sale of securities 869 500,000 500,000 1,000,000 / 1,300, 1,350,000 2,350,000 / 50,000 20,000 2,280,000 / 1,780,000 500,000 2,280,000 L911 280,004 70,000 50,000% 300,000 /> => 4. Received a periodic report from trustee that bonds payable \ of P2,000,000 and interest of P200,000 were paid. 5 Bonds payable 2,000,000 i Dey Interest expense 200,000 Sinking fund - trustee 2,200,000 ot z 5. Received remittance from trustee of the balance of the sinking fund. Cash 80,000 Sinking fund —trustee 80,000 Sinking fund balance 2,280,000 Less: Payment of bonds payable and interest 2,200,000 Cash remittance from trustee 80,000 Sinking fund contribution The amount of periodic contribution to the sinking fund may be voluntary or mandatory. It is voluntary if the sinking fund contribution is the result of a discretionary action of management. It is mandatory if the sinking fund contribution is required by contract, usually with bondholders. Annual contribution at the end of each year What would be the annual contribution to the fund at the end of each year for 4years in order to accumulate P1,000,000 at the rate of 12% compounded annually? — The first annual contribution is made on December 31, 2013 and every December 31 thereafter. inn 22 The annual contribution is simply computed by dividing the fund to be accumulated by the future value of an ordinary annuity of 1. The future value of an ordinary annuity of 1 at 12% for four years is 4.7793. Thus, P1,000,000 divided by 4.7793 equals an annual contribution of P209,236. A 870 @Fund accumulation Interest on Annual Date fund balance contribution Fund balance Dec. 31, 2013 209,236 209,236 Dec. 31, 2014 25,108 209,236 443,580 Dec. 31, 2015 53,230 209,236 706,046 Dec. 31, 2016 84,718 209,236 1,000,000 Interest on fund balance is equal to fund balance times interest rate. Thus, for 2014, P209,236 times 12% equals 25,108 and so on. There is no interest for 2013 because the first annual contribution is made on December 31, 2013. Annual contribution is equal to P1,000,000 divided by 4.7793 or P209,236. Fund balance is equal to the preceding fund balance plus interest plus the annual contribution. Thus, on December 31, 2014, P209,236 plus P25,108 plus P209,236 equals P443,580 and so on. Annual contribution in advance What would be the annual contribution to the fund at the beginning of each year for 4 years in order to accumulate P1,000,000 at the rate of 12% compounded annually? The first annual contribution is on January 1, 2013 and eve January 1 thereafter, ve ot In this case, the formula is to divid accumulated by the "f Sperone gs ‘uture value of a i i advance at 12% for 4 years". SVann ny OF 7am The futi i i jeer pane of an annuity of 1 in advance at 12% for 4 Thus, P1,00 Pe contribution of Pisa tied by 5.8528 equals an annual aA 871Fund accumulation Date Interest Annual contribution Fund balance Jan. 1, 2013 186,818 186,818 Jan. 1, 2014 22,418 186,818 396,054 Jan. 1, 2015 47,526 186,818 630,398 Jan. 1, 2016 75,648 186,818 892,864 Dec. 31,2016 107,136 - 1,000,000 Interest is equal to the fund balance times the interest rate. Thus, on January 1, 2014, P186,818 times 12% equals P22,418, and so on. Fund balance is equal to the preceding fund balance plus interest plus annual contribution. Thus, on January 1, 2014, P186,818 plus P22,418 plus P186,818 equals P396,054, and so on, One-time contribution What would be the Jump sum contribution on January 1, 2013 in order to accumulate P1,000,000 at the rate of 12% compounded annually for 4 years? In this case, the future value of 1 factor is necessary. The future value of 1 at 12% for 4 years is 1.5735. The lump sum contribution is also computed by dividing the fund to be accumulated by the future value of 1 factor. Thus, P1,000,000 divided by 1.5735 equals P635,526. Date Interest Fund balance January 1, 2013 635,526 December 31, 2013 76,263 711,789 December 31, 2014 85,415 797,204 December 31, 2015 95,664 892,868 December 31, 2016 107,132 1,000,000 Interest is equal to the fund balance times the interest rate. Thus, on December 31, 2013, P635,526 times 12% equals P76,263, and so on. Fund balance is equal to the preceding fund balance plus the interest. Thus, on December 31, 2013, P635,526 plus P76,263 equals P711,789, and so on. ~, ae —_Classification of sinking fund As a rule, sinking fund is classified as poncurrent asset. However, if the bond payable for which the sinking fund was set aside becomes due within twelve months after the end of reporting period, the sinking fund is reclassified as current asset. The classification of a fund shall parallel the classification of the related liability. The bond payable is reclassified as current liability because it already matures within twelve months after the end of the reporting period. Thus, the sinking fund is also reclassified as current asset. Preference share redemption fund The terms of the preference share issue may provide that preference share may be called in for redemption by the issuing entity. In such a case, the issuing entity may set up a fund to insure the eventual redemption of the preference share. For example, if the entity sets aside P1,000,000 for the redemption of preference share, the journal entry to record the establishment of the fund is: Preference share redemption fund 1,000,000 a Cash 1,000,000 If subsequently, 10,000 preference shares of P50 par value originally issued at par, are redeemed at the option of the entity at P53 per share, the redemption is recorded as follows: Preference share capital 500,000 tained earnings 30,000 Preference share redemption fund 80,000 873 waeMes The future acquisition of property, plant and equipment may involve the setting aside of a certain amount of cash. Such fund may be called “replacement fund” or “plant expansion fund”, Fund for acquisition of property A replacement fund, as the title suggests, is cash set aside in anticipation of future replacement of depreciable asset. On the other hand, a plant expansion fund is cash set aside in anticipation of future acquisition of additional property because of expanded or increased volume of operations. Contingency fund A contingency fund is cash set aside for the purpose of meeting obligations that may arise from contingencies like pending lawsuits or taxes in dispute. For example, an entity is sued for P500,000 damages by virtue of a breach of contact. The attorneys for the entity are of the opinion that the entity has a good case. However, the entity decides to set up a fund to meet the obligation in case of any eventuality. If the entity sets aside P500,000 as contingency fund, the journal entry is: Contingency fund 500,000 Cash 500,000 The suit is ultimately decided against the entity. The entity is required, however, to pay only P300,000. The journal entry to record the payment is: Loss on damages 300,000 Contingency fund 300,000 The balance of P200,000 in the contingency fund is then reverted to the general cash account as follows: Cash 200,000 Contingency fund 200,000 fa 874Insurance fund An insurance fund is cash set aside for the purpose of meeting obligations that may arise from certain risks not insured against, such as fire, typhoon, explosion and other similar casualties. * The establishment of an insurance fund is the result of a policy of self-insurance which is actually a policy of “no insurance”. An entity may decide to self-insure on the philosophy that in the long run the cost’ of self-insurance would be less than the cost of purchased insurance. For example, if the entity makes an annual contribution to an insurance fund of P200,000, the journal entry is: Insurance fund 200,000 Cash 200,000 Subsequently after five years, a building is completely destroyed by fire. At the time of the fire, the building records show cost of P4,000,000 and accumulated depreciation of P1,500,000. The journal entry to record the fire loss is: Fire loss 2,500,000 Accumulated depreciation 1,500,000 Building 4,000,000 A new building constructed at a total cost of P5,000,000 is recorded as follows: Building 5,000,000 Insurance fund (200,000 x 5 years) 1,000,000 Cash 4,000,000 Cash surrender value The entity may i i i é beneficiacy, y insure the life of its officers and name itself as foe arpose ie os arrangement is to compensate the entity i rvices arising from the i important members of anaceene armas death of iA 875 >The accounting for the payment of the insurance premiums will depend on whether the beneficiary is the entity itself or the officer insured. If the beneficiary is the officer insured or any person other than the entity like the wife 6f the officer, no accounting problem is encountered because the payment of the premium is simply charged to insurance expense. An accounting problem will arise when the beneficiary is the entity itself. Itis on this assumption that the following discussion is geared. Under our law, @ life insurance policy has a cash surrender value and loan value. Cash surrender value is the amount which the insurance firm will pay upon the surrender and cancelation of the life insurance policy. Cash surrender value arises if the following requisites are present: a. The policy is a life policy. There is no cash surrender value in fire, accident and other-nonlife policies. b. Premiums for three full years must have been paid. c. The policy is surrendered at the end of the third year or anytime thereafter. Thus, a cash surrender value legally commences to accrue at the end of the third year. However, there are certain insurance firms which sell life insurance policies that grant cash surrender value even at the end of the second year only. The cash surrender value is classified as noncurrent investment. On the other hand, a loan value is the amount which the insured can borrow from the insurance firm with the cash surrender value as collateral security. When an amount is borrowed from the insurance entity, it is treated as an ordinary obligation. The loan shall not be deducted from the cash surrender value for financial statement Purposes, 876t -P —_ ~ Theory on the cash surrender value ue of a life policy arises from the fact that The cash surrender val xcess of the annual risk the fixed annual premium is much in e: during the earlier years of the policy. der to balance the deficiency of the The excess is necessary in 01 same premium to meet the annual risk during the later years of the policy. the annual cost of insurance, Such excess in the premium paid over the cash surrender value. with accumulated interest, constitutes Accounting procedures The accounting procedures concerning the cash surrender value are as follows: : a. Payment of {h@¥nsurance premium Life insurance expense xXx Cash xXx b. Adjustment of the unexpired premium at the end of the period: Prepaid life insurance xXx Life insurance expense XX c. Dividends received on the life policy are not income but a reduction of life insurance expense. Cash xXx Life insurance expense XX d. Initial recognition of the cash surrender value at the end of © the third year: Cash surrender value so Life insurance expense xx Retained earnings XX The initial cash surrender value is regarded as applicable to three years of the life policy. That portion of the cash surrender value applicable to the current year is credited to life insurance expense and that portion applicable to the prior years is credited to retained earnings. y 877r e, Recognition of cash surrender value subsequent to the third year: Cash surrender value xXx Life insurance expense xXx f. Receipt of the proceeds of the life policy: Cash xx Cash surrender value xx Life insurance expense XX Gain on life insurance settlement xX The amount to be credited to the cash surrender value should be the adjusted balance at the time of death of the insured. The life insurance expense account is credited for the unexpired premium at the time of death. The gain on life insurance settlement is determined as follows: Face of policy xXx Less: Cash surrender value xx Unexpired premium Kx xx Gain on life insurance settlement Xx Policy year coincides with accounting year An entity insures the life of its president for P2,000,000 the entity being the beneficiary of an ordinary life policy. The annual premium is P30,000. The policy is dated Janu: ary 1, 2013 and carries the following cash surrender value: End of the policy year Cash surrender value 2013 a 2014 a 2015 30,000 2016 42,000: 2017 58,000 ‘The entity follows the calendar ‘ au year as its fiscal period. The we ses on June 30, 2017 and the policy is collected onJournal entries 2013 Jan. 1 2014 Jan. 1 2015 Jan. 1 Dec. 31 2016 Jan. 1 Dec. 31 Life insurance expense 30,000 Cash 30,000 Life insurance expense 30,000 Cash 30,000 Life insurance expense 30,000 Cash 30,000 Cash surrender value 30,000 Life insurance expense (1 / 3) 10,000 Retained earnings (prior years) 20,000 To initially recognize the cash surrender value at the end of the 3rd policy year. Life insurance expense 30,000 Cash 30,000 Cash surrender value 12,000 Life insurance expense 12,000 To recognize the increase in cash, surrender value at the end of the 4th policy year as follows: Balance, December 31, 2016 42,000 Balance, December 31, 2015 30,000 Increase in cash surrender value for 2016 12,000 879- 2017 - Jan, 1 Life insurance expense 30,000 Cash 30,000 June 30 Cash surrender value 8,000 Life insurance expense 8,000 To recognize the increase in cash surrender value up to time of death as follows: Balance, December 31, 2017 58,000 Balance, December 31, 2016 42,000 Increase in cash surrender value for 2017 16,000 Increase from January 1 to June 30, 2017 (1/2x 16,000) 8,000 July 31 Cash 2,000,000 Cash surrender value 50,000 * Life insurance expense (1 / 2x 30,000) 15,000¥ Gain on life insurance settlement 1,935,000 Policy year does not coincide with accounting year An entity insures the life of its president for P2,000,000, the entity being named as the beneficiary. The annual premium is P30,000. The policy is dated April. 1, 2013 and carries the following cash surrender value: End of the policy year Cash surrender value April 1, 2014 - April 1, 2015 April 1, 2016 30,000 ~ April 1, 2017 42,000 April 1, 2018 58,000 The entity follows the calendar year as its accounting period. The president dies on June 30,2016 and the face of the policy is collected on July 31, 2016. 880 fa tlyJournal entries 2013 April 1 Dec. 31 2014 Jan. 1 April 1 Dec. 31 2015 Jan. 1 April 1 Dec. 31 Life insurance expense 30,000 Cash Annual premium for the Ist policy year. Prepaid life insurance 7,500 Life insurance expense (3/ 12x 30,000) Life insurance expense 7,500 Prepaid life insurance Reversing entry. Life insurance expense 30,000 Cash Prepaid life insurance 7,500 Life insurance expense Life insurance expense 7,500 Prepaid life insurance Life insurance expense 30,000 Cash Prepaid life insurance 7,500 Pitte insurance expense 881 30,000 7,500 7,500 30,000 7,500 7,500 30,000 7,5002016 Jan. 1 April 1 April 1 dune 30 duly 31 Life insurance expense 7,500 Prepaid life insurance 7,500 Cash surrender value 30,000 Life insurance expense 2,500 Retained earnings 27,500 Initial recognition of the cash surrender value at the end of the third policy year. April 1, 2013 to December 31, 2015 (33 / 36 x 30,000) prior years 27,500 January 1, 2016 to April 1, 2016 (3 / 36x 30,000) _ 2,500 Total 30,000 Life insurance expense 30,000 Cash 30,000 Cash surrender value 3,000 Life insurance expense 3,000 Increase in cash surrender value from April 1, 2016 to June 30, 2016. Balance, April 1, 2017 42,000 Balance, April 1, 2016 30,000 Increase from April 1, 2016 to April 1, 2017 Increase from April 1, 2016 to June 30, 2016 (8/ 12x 12,000) 3,000 Cash 2,000,000 Cash surrender value 33,000 Life insurance expense 22,500 Gain on life insurance settlement 1,944,500 Face of policy 2,000,000 Cash surrender value (30,000 + 3,000) (33,000) Unexpiredpremium (9/ 12x 30,000) (22,500) Gain on life insurance 1,944,500PROBLEMS Problem 20-1 Multiple choice (AICPA) . Interest in life insurance contract shall be carried at - a. NIL b. Face of policy c. Total amount of insurance premiums paid d. Cash surrender value 2. An increase in the cash surrender value is recorded by Increasing annual insurance expense Increasing investment income Memorandum entry only Decreasing annual insurance expense Boge 3. Upon the death of an officer, an entity received the proceeds of a life policy held by the entity on the officer. What amount of revenue should be reported? a. Proceeds received b. Proceeds received less cash surrender value c. Proceeds received plus cash surrender value d. Zero 4. If a sinking fund is used to purchase securities, the fund a. Increases when revenue is earned on the securities b. Decreases when the securities are purchased c. Decreases when revenue is earned on the securities d. Is not affected by revenue earned on the securities 5. A trustee holds cash in the sinking fund representing the annual deposits to the fund and interest earned. How should the sinking fund be classified? The entire sinking fund is classified as current asset The entire sinking fund is classified as noncurrent asset. The cash in the sinking fund is classified a current asset. ‘The accumulated deposits only are shown as noncurrent. Boop 884 és i’ ed Problem 20-4 (IAA) The following transactions relate to a sinking fund for retirement of long term bonds of Capable Company. 1. In accordance with the terms of the bond indenture, cash in the amount of P2,000,000 is transferred at the end of the first year, from the regular cash account to the sinking fund. The entity administers the fund. 2. The sinking fund cash is used to acquire AB Company 12% bonds of P500,000 face value, maturing in five years, for 450,000. 3. The sinking fund cash is used to acquire 10% P100 par value CD 5,000 preference shares, at P80 per share. 4. Annual interest is received on the AB bonds. The discount on the bonds is amortized accordingly using straight line method. 5. Sinking fund expenses of P20,000 are paid from the sinking fund cash. 6. The sinking fund cash is used to acquire EF Company 10% bonds of P400,000 face value, maturing in four years for P400,000 plus accrued interest of P10,000. 7. Annual dividends are received on the CD preference share. 8. Interest is received on the EF bonds, P20,000,.including the accrued interest at the time of purchase. 9. All EF bonds ‘are sold for P450,000. No interest is accrued at the time ofjsale. / 10. Retained eafnings are appropriated in an amount equal to the sinking fund balance. Required: Prepare journal entries to record the transactions. 887 sa EaProblem 20-5 (ACP) Decorum Company and the trustee provided the following transactions in chronological order in connection with a sinking fund. 1. Cash contribution to the sinking fund, P1,000,000. 2. Acquisition of securities at par by the trustee, P700,000. 3. The trustee receives interest on the securities, P60,000. 4, The trustee pays expenses of P30,000. 5. The trustee sells the securities for P800,000 plus accrued interest, P10,000. 6. The trustee renders a report to the entity. 7. The trustee pays bonds payable of P1,000,000 and interest of P100,000. 8. The trustee remits the remaining cash to the entity. Required: Prepare journal entries on the books of Decorum Company to record the transactions. Problem 20-6 (IAA) The bond indenture of Eager Company requires an accumulation of fund of P5,000,000 in 5 years. The first annual contribution to the fund is made on December 31, 2013 and every December 31 thereafter. The interest cost is 10%, The table of present value and future amount shows the following factors: Present value of an ordinary annuity of 1 at 10% for 5periods 3.7908 Future amount of an ordinary annuity of 1 at 10% for 5periods 6.105, 1 Required: 1. Compute the annual contribution to the fund. 2. Prepare a schedule of the fund accumulation. Zi} an LeProblem 20-7 (IAA) On January 1, 2013, Fanatic Company adopted a plan to accumulate fund for environmental improvement beginning July 1, 2013 at an estimated cost of P2,000,000. The entity plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit is made on July 1, 2013 and every July 1 thereafter. Future amount factors are as follows: Future amount of ordinary annuity of 1 at 10% for 4 periods 4.6410 Future amount of annuity in advance of 1 at 10% for 4 periods 5.1051 Required: Wl (00) 1, Compute the annual deposit to the fund. s 1 | AGI 2. Prepare a schedule of fund accumulation. a Problem 20-8 (ACP) | Garrulous Company insures the life of its president for P2,000,000, the entity being the beneficiary of an ordinary life policy. The annual premium is P60,000. The policy is dated January 1, 2013 and carries the following cash surrender value. End of policy year Cash surrender value 2013 7 2014 = 2015 60,000 2016 84,000 2017 116,000 The entity follows the calendar year as its accounting period. The president dies on June 30, 2017 and the policy is collected on July 31, 2017. Required: Prepare journal entries from January 1, 2013 to duly 31, 2017. Ly 889 KsProblem 20-9 (ACP) Hug Company insures the life of its President for P2,000,000, the entity being named as the beneficiary. The annual premium is P60,000. The policy is dated April 1, 2018 and carries the following cash surrender value: End of policy year Cash surrender value April 1, 2014 is April 1, 2015 April 1, 2016 60,000 April 1, 2017 84,000 April 1, 2018 116,000 The entity follows the calendar year as its accounting period. The president dies on July 1, 2017 and the face of the policy is collected on July 31, 2017. Required: Prepare journal entries from April 1, 2013 to July 31, 2017. Problem 20-10 (IAA) Impartial Company took out a P5,000,000 insurance policy on the life of its president on January 1, 2013. The entity's accounting period is the calendar year. The annual premium on the policy is P80,000. Data regarding dividends and cash surrender value are as follows: 2014 2015 2016 Dividend received on December 31 i, 5,000 6,000 Cash surrender value - 42,000 47,000 Required: Prepare journal entries for 2014, 2015 and 2016. g / 890Problem 20-11 (IAA) _The following accounts are found under current assets in the December 31, 2013 statement of financial position of Elysee Company: Cash surrender value 90,000 ‘Less: Policy loan from insurance company 50,000 40,000 Dividend receivable from insurance company 2,000 The above accounts are the only ones in the statement of financial position which pertain to the insurance policy or the loan. Upon investigation, the following data are gathered: a. The cash surrender value reported in the statement of financial position is for June 30, 2014. The cash surrender value was P80,000 on June 30, 2013. b. On June 30, 2013, the entity paid the annual premium of P30,000 minus the dividend declared of P2,000. c. The loan from the insurance company is a one-year note dated April 1, 2013. The 12% interest is payable on the date of maturity. d. The dividend declared was recorded by debiting dividend receivable and crediting dividend income. Required: 1. Prepare journal entries to correct the accounts on December 31, 2013. Indicate the financial statement classification of the accounts related to the insurance policy and the loan. 891— Problem 20-12 (ACP) On January 1, 2013, Inscrutable Company adopted a plan to accumulate P8,000,000 by January 1, 2017. The entity plans to make four equal annual deposits to a fund that will earn interest at 12% compounded annually. The first deposit was made on December 31, 2013 and every December 31 thereafter. Future value factors are: Future value of an ordinary annuity of 1 at 12% for 4 periods 4.78 Future value of an annuity in advance of 1 at 12% for 4 periods 5.35, What is the required annual deposit to the fund? a. 1,464,435 b. 1,495,330 c. 2,000,000 d. 1,673,640 Problem 20-13 (AICPA Adapted) On January 1, 2013, Jaunt Company adopted a plan to accumulate funds for a new plant building to be erected beginning January 1, 2018 at an estimated cost of P9,000,000. The entity intends to make five equal annual deposits in a fund that will earn interest at 8% compounded annually. The first deposit is made on January 1, 2013 and every January 1 thereafter> Present value and future value factors are as follows: Future value of ordinary annuity of 1 at 8% for 5 periods 5.87 Future value of annuity in advance of 1 at 8% for periods 6.34 What is the required annual deposit to the fund? a. 2,255,640 b. 1,419,560 c. 1,533,220 d. 1,800,000 892Problem 20-14 (AICPA Adapted) On March 15, 2013, Mandaue Company adopted a plan to accumulate P5,000,000 by September 1, 2017. The entity plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually. The entity made the first deposit on September 1, 2013. The future value of 1 at 10% for 4 periods is 1.46, the future value of an ordinary annuity of 1 at 10% for 4 periods is 4.64, and the future value of annuity of 1 in advance at 10% for 4 periods is 5.11. What is the annual deposit to the fund? a. 1,250,000 b. 1,077,500 c 978,500 d. 730,000 Problem 20-15 (IAA) Cebu Company made an investment of P5,000,000 at 10% per annum compounded annually for 6 years. The future value of 1 at 10% for 6 periods is 1.77. What is the amount of the investment on the date of maturity? 8,850,000 8,050,000 9,750,000 5,500,000 Bo op Problem 20-16 (IAA) Mactan Company made investment for 5 years at 12% per annum compounded semiannually to equal P7,160,000 on the date of maturity. The future value of 1 at 12% for 5 periods is 1.76, and the future value of 1 at 6% for 10 periods is 1.79, What amount must be deposited now at the compound interest to provide the desired sum? 4,000,000 4,068,180 4,236,680 3,768,420 Be rp 893Problem 20-17 (AICPA Adapted) Lackluster Company provided the following information relative to a bond sinking fund placed in trust as required by the underwriter of the bonds for 2013: Bond sinking fund, January 1 4,500,000 Additional investment during the year 900,000 Dividends on investment 150,000 Interest revenue ‘d 300,000 Administration costs 100,000 Carrying amount of bonds payable 6,000,000 What amount should be reported in the December 31, 2013 statement of financial position as bond sinking fund? 5,750,000 5,850,000 5,950,000 3,950,000 Problem 20-18 (AICPA Adapted) acop On January 1, 2009, Marital Company purchased a P5,000,000 ordinary life insurance policy on its president. The policy year and accounting year coincide. Additional data for the year ended December 31, 2013 are as follows: Cash surrender value, January 1 245,000 Cash surrender value, December 31 270,000 Annual advance premium paid —January 1 100,000 Dividend received — July 1 15,000 The entity is the beneficiary under the life insurance policy. The insured died on January 2, 2014, after the payment of arinual premium of P100,000 on January 1, 2014. What is the life insurance expense for 2013? a. 100,000 b. 85,000 c. 60,000 d 894