Dronz Delivery Services, Inc., [DDS] runs a well established delivery service which is used by several large mail order companies and grocery stores. Following an intial rapid growth after startup, the firm's business eventually slowed down as a result of a similar decline in the businesses of its partners. During the expansion stage, the company had acquired some high tech delivery equipment to support its expanded business operations. The acquisition had been funded by the Lachine Commercial Bank [The Bank]. The Bank had issued a 10-year 12% note at par for $4,320,000. In addition, the company further owed the Bank $518,400 for past interest. Since the loan was coming due on January 1, 2020, DDS approached the Bank for concessions to settle its debt.

The two parties finally arrive at an agreement on the terms for a final settlemet. On January 1, 2020, DDS would pay a cash amount of $630,000 and accept a 6% 6-year note for $4,200,000 agreed to terms in a final settlement plan. Interest on the revised note is payable annually on December 31. The market rate on January 1, 2020 was 8%. Both parties have adopted IFRS.

[36] The determination of whether this re-financing is a major settlement or minor modification restructure will involve comparing the amounts of the present value of the cash flows of the renegotiated debt plus cash payments made with the amount of the obligation forgiven. These amounts, as calculated respectively, will be [Present Value Cash Flows, Renegotiated Debt: $; Existing Obligation Forgiven: $]:

Select one:

a.$5,712,000; and $4,838,400

b.$3,163,921; and $4,838,400

c.$3,793,921; and $4,838,400

d.$3,163,921; $4,320,000

e.None of the above

[37] For this Question, assume that the renegotiated terms resulted in a settlement. DDS and BANK will record the new note in their respective books of accounts with amounts as follows [DDS: $; BANK: $]

a.DDS: $4,200,000; BANK: $4,320,000

b.

DDS: $4,200,000; BANK: $4,200,000

c.

DDS: $3,811,680; BANK: $4,838,400

d.

DDS: $ $3,811,680; BANK: $3,163,921

e.

None of the above answers.

[38] For this Question, assume that the renegotiated terms resulted in a settlement. DDS and BANK will record in their respective books of accounts on January 1, 2020, as follows [DDS: $ Loss or Gain; BANK: $Loss or Gain]

a.DDS: NO LOSS or GAIN, $0; BANK: NO LOSS or GAIN, $0

b.

DDS: LOSS, $120,000; BANK: GAIN , $120,000

c.

DDS: GAIN, $1,156,079; BANK: LOSS , $1,156,079

d.

DDS: GAIN, $396,720; BANK: LOSS , $526,479

e.

None of the above answers.