The following two cases are related to debt restructurings of companies in China.

4.1 Case 1:

Sunshine Company Limited (Sunshine) is a toy manufacturer.On January 5, 2019, Sunshine sold some toys to Rainfall Company Limited (Rainfall) of the amount of RMB 700,000.Sunshine classified the accounts receivable of RMB 700,000 as financial asset measured as amortized cost. Rainfall classified the same amount of accounts payable as financial liability measured as amortized cost.

On May 13, 2019, Sunshine and Rainfall signed a debt restructuring agreement.Rainfall agreed to transfer an intangible asset which was a patent with the carrying amount of RMB 620,000 (original cost of RMB 750,000, accumulated amortization of RMB 90,000 and impairment loss of RMB 40,000) to repay the accounts payable.

On May 20, 2019, both parties completed the transfer of the intangible asset.Sunshine paid the registration fee of RMB 20,000.On this date, the fair value and provision of bad debts for the accounts receivable for Sunshine were RMB 610,000 and RMB 50,000 respectively. The carrying amount of the accounts payable in the book of Rainfall was still RMB 700,000.Ignore any relevant taxes.

4.2 Case 2:

Bedrock Company Limited (Bedrock) has reported negative net income during the past two years and the first three quarters in the current year. Also, the interest payments to the creditors has been long overdue since the beginning of the current year.

Four weeks prior to the year end, Bedrock announced that it reached the agreements withall the creditors to waive 30% of unpaid interest on the debts if Bedrock can repay all the remining outstanding interest by the end of the current year. In addition, Forest Group (Forest) agreed to waive an extra 40% of its unpaid interest. This extra amount of interest waived by Forecast is about RMB 10 million.Bedrock repaid all outstanding interest by the end of the current year as per the agreements with all the creditors.

Disclosures of ownership structure information revealed that Forest Group is the largest shareholder of Bedrock (holding 80% of share ownership).As shown in the financial report for the current year, Bedrock reported a small positive net income, mainly because the interest waived are recognized as a gain in the income statement.

Required:

4.1)Please prepare journal entries for the debt restructurings for both Sunshine and Rainfall in case 1.

4.2)Please discuss the potential incentive and the appropriateness of Bedrock's accounting treatment in case 2.