PROBLEM 4: CLASSROOM ACTIVITY 1. On January 1, 20x1, ABC Co. insured the life of one of its key management personnel for P10,000,000. ABC Co. is the beneficiary. The insurance policy requires annual payments of P280,000 at the start of each year. Information on the cash surrender value is shown below: Policy year Cash surrender value Dec. 31, 20x1 Dec 31, 20x2 Dec. 31, 20x3 180,000 Dec 31, 20x4 216,000 Dec 31, 20x5 260,000 Additional Information ABC Co. received P4, 000 cash dividend from the life insurance on April 1, 20x4. The key employee died on October 1, 20x5. Requirements: a. Compute for the insurance expense in each of the years 20x1 through 20x5. b. Compute for the gain on the settlement of the insurance. Solution: Requirement A Year Insurance Expense 20x1 280,000 20x2 280,000 20x3 (280K-180K x 1/3) 220,000 20x4 (280K-4K-260K-180K) 240,000 20x5 (280K x 9/12) 210, 000 Requirement B Cash 10,000,000 Cash Surrender Value 249,000 Insurance Expense 70,000