CASE TWO, J.J. HEVA COMPANY J.J. Heva Company is an Americancompany that prepares its financial statements under US GAAP. In2014, the company reported income of $5,000,000 wit stockholders’equity of $40,000,000 on December 31, 2014. In anticipation ofpossible adoption of IFRS by the US companies, the managementwishes to explore possible impacts of the conversion on thecompany’s financial statements. You are hired to prepare areconciliation schedule to convert 2014 income as well asstockholders’ equity on December 31, 2014 from US GAAP basis toIFRS. The following information is provided by the company’saccounting department: 1) In 2012, the company’s pension plan wasamended and consequently created a past service cost of $75,000.Half of the past service cost was attributable to already vestedemployees who had an average remaining service life of 15 years,and half of the past service cost was attributable to non-vestedemployees who, on average, had two more years until vesting. Thecompany has no retired employees. 2) In 2014, the company enteredinto a contract to provide engineering services to a long termcustomer over a 12-month period. The fixed price is $300,000 andthe company estimates with high degree of reliability that theproject is 30 percent complete at the end of 2014. 3) The companypublicly announced a restructuring plan in 2014 and created a validexpectation on the part of the employees to be terminated that thecompany will carry out the restructuring. The estimated cost ofrestructuring is $500,000. No legal obligation to restructureexists as of December 31, 2014. 4) Stock options were granted tokey officers on January 1, 2014. The grant date fair value peroption was $10, and a total of 9,000 options were granted. Theoptions vest in equal installments over three years: one-third in2013, one-third in 2014, and one-third in 2015. A straight linemethod is utilized to recognize compensation expense related tostock options. 5) On January 1, 2013, the company issued$10,000,000 of 5% bonds at par value that matures in five years onDecember 31, 2017. Costs incurred in issuing the bonds were$500,000. Interest is paid on bonds annually. Assume the effectiveinterest rate is 6.193%. Make sure your reconciliation statement isaccompanied by an adequate explanation and reference for every oneof your adjustments. Ignore income taxes.