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EXAMINATION PART 2Name: Rating:Instructor: Date:G E N E R A L D I R E C T I O N SREAD THIS PAGE BEFORE STARTING THE ASSESSMENTThis is a ___ paged test and is composed of 2 sections and has a totalscore of fifty (50) points. You have sixty (60) Minutes to finish thisexamination. The breakdown of the ...

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

Name:

Rating:

Instructor:

Date:

G E N E R A L D I R E C T I O N S READ THIS PAGE BEFORE STARTING THE ASSESSMENT This is a ___ paged test and is composed of 2 sections and has a total score of fifty (50) points. You have sixty (60) Minutes to finish this examination. The breakdown of the exam is as follows: (1) Multiple-choice Theory Section. The questions in this section is with four answer choices. The test is composed of 20 questions and is rated as 1 point each. (2) Problem Solving. The questions in this section is with four answer choices. The test is composed of 15 questions and is rated as 1 point each. No solution, no points. All things unnecessary for the test must be put in front of the testing area. Use BLACK or BLUE ink ballpen only. Write all your answers on the designated answer sheet. Further, erasures are strictly NOT allowed and will invalidate your answers.

LEARNING OBJECTIVE: This assessment measures the competence of the student in terms of his/her application of knowledge and skills in the following topics: 1. Shareholder’s Equity 2. Share-based payment 3. Book Value per share 4. Earnings per share 5. Diluted Earnings per share

You may NOT use smart phones or reference materials during the testing session. Only the allowed calculators should be used. Try to answer all questions. In general, if you have some knowledge about a question, it is better to try to answer it. You will not be penalized for guessing. Be sure to allocate your time carefully so you can complete the entire test within the exam session. You may go back and review your answers at any time during the exam session. Those who are caught cheating or doing acts not allowed during the exam shall be instructed to surrender their test papers and shall leave the testing room immediately. Subsequently, their papers shall be rated as ZERO. This concludes the instruction page. You may now begin answering.

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

MULTIPLE CHOICE ________1. Entity A received a subscription for 2,000 shares at ₱18 per share on March 31, 20x1. Entity A’s shares have a par value ₱5 per share. Entity A collected the subscription receivable on May 15, 20x1. Which of the following statements is correct? a. Entity A should credit share premium for ₱13,000 on March 31, 20x1. b. Entity A should credit share premium for ₱26,000 on March 31, 20x1. c. Entity A should credit share premium for ₱13,000 on May 15, 20x1. d. Entity A should credit share premium for ₱26,000 on May 15, 20x1. 2,000 sh. x (18 – 5) = 26,000 share premium recorded at the subscription date, not collection date ________2. On February 26, 20x1, Entity A acquires 10,000 of its own shares for ₱3 per share. The shares have a par value of ₱1 and were selling in the stock market at ₱4 per share on this date. To record the reacquisition, Entity A should a. debit Treasury shares account for ₱30,000. b. credit Treasury shares account for ₱30,000. c. debit Share premium account for ₱10,000. d. credit Treasury shares account for ₱40,000. 10,000 x ₱3 cost = 30,000 ________3. Two years ago, Entity A reacquired 2,000 of its own shares with par value of ₱100 per share for ₱240,000. Today, Entity A reissues half of the treasury shares at ₱160 per share. The journal entry to record the reissuance includes which of the following? a. Credit to Retained earnings – unrestricted account for ₱240,000 b. Debit to Treasury shares account for ₱120,000 c. Credit to Share premium – treasury shares for ₱80,000 d. Credit to Share premium – treasury shares for ₱40,000 Solution: Date

Date

Cash (1,000 x ₱160) Treasury shares (240,000 x 1/2) Share premium – treasury shares Retained earnings – appropriated Retained earnings – unrestricted

160,000 120,000 40,000 120,000 120,000

________4. Entity A reacquires 10,000 of its own shares for ₱50. The shares have par value of ₱10 and were originally issued at ₱15 per share. Subsequently, Entity A reissues the 10,000 shares at ₱48 per share. The journal entry to record the reissuance involves which of the following? a. Debit to Retained earnings for ₱20,000 b. Credit to Cash for ₱480,000 c. Debit to Share premium for ₱50,000 d. Debit to Treasury shares for ₱500,000 Solution: Date

Cash (10,00 x ₱48) (a) Share premium – treasury shares

Page 2 of 13

480,000 -

ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION (b) Retained earnings Treasury shares (10,000 x ₱50)

1ST GRADING PERIOD PART 2 20,000 500,000

________5. Entity A reacquires 10,000 of its own shares for ₱50. The shares have par value of ₱10 and were originally issued at ₱15 per share. Subsequently, Entity A reissues half of the reacquired shares at ₱58 per share and retires the other half. The journal entry to record the retirement of the shares includes which of the following? (Hint: Provide the entries for both the reissuance and the retirement.) a. Debit to Retained earnings for ₱175,000 b. Credit to Share premium - retirement for ₱40,000 c. Debit to Share premium for ₱50,000 d. Debit to Retained earnings for ₱135,000 Solutions: Date

Date

Cash (10,000 x ½ x ₱58) Treasury shares (10,000 x ½ x ₱50) Share premium – treasury shares

Share capital (5,000 x ₱10) Share premium – original issuance (5K x ₱5) (a) Share premium – treasury shares (see above) (b) Retained earnings (balancing figure) Treasury shares (5,000 x 50)

290,000 250,000 40,000 50,000 25,000 40,000 135,000 250,000

________6. Entity A reacquires 1,000 of its own shares for ₱25 and immediately retires them. The shares have par value of ₱10 and were originally issued at ₱30 per share. The journal entry to record the retirement of the shares includes which of the following? a. Debit to Retained earnings for ₱5,000 b. Credit to Treasury shares for ₱30,000 c. Credit to Share capital for ₱10,000 d. Credit to Share premium - retirement for ₱5,000 Solution: Date

Share capital (1,000 x ₱10) Share premium – original issuance (1K x ₱20) Cash (1,000 x 25) Share premium – retirement

10,000 20,000 25,000 5,000

________7. You and I are the accountants of A Corporation. Our company’s authorized capitalization is ₱100M divided into 100M shares with par value per share of ₱1. Which of the following statements is correct? a. If our company issues 10,000 shares for ₱5 each, we will recognize a share premium of ₱50,000. b. Our company can issue shares at a subscription price that is below ₱1. c. Our company can issue more than 100M shares without amending its articles of incorporation. d. If our company receives share subscription for 20,000 shares at ₱15 per share, we will most likely recognize the related share premium on subscription date rather than on the collection date.

Page 3 of 13

ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

________8. Legal capital is the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled first. For no-par value shares, legal capital is a. the aggregate par value of shares issued and subscribed. b. the total consideration received or receivable from shares issued or subscribed. c. the aggregate stated value of shares issued and subscribed. d. the aggregate market value of shares issued and subscribed. ________9. Which of the following is not one of the basic shareholders rights? a. The right to participate in earnings. b. The right to maintain one's proportional interest in the corporation. c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation. d. The right to inspect the accounting records of the corporation. ________10. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80 percent of the subscription price was collected. Share premium would increase on February 1 May 1 a. No Yes b. No No c. Yes No d. Yes Yes ________11. Which of the following is an appropriate presentation of treasury stock? a. As a marketable security b. As a deduction at cost from total stockholders' equity c. As a deduction at cost from total contingent liabilities d. As a deduction at par from total stockholders' equity ________12. Gains and losses on the purchase and resale of treasury stock may be reflected only in a. share premium account. b. share premium and retained earnings accounts. c. income, paid-in capital, and retaining earnings accounts. d. income and paid-in capital accounts. ________13. An enterprise has made all necessary adjusting entries and is now closing its accounts for the period. Dividends of ₱30,000 were declared and distributed during the year. The entry to close the dividends account would be a. Retained earnings 30,000 Dividends 30,000 b. Dividends 30,000 Retained earnings 30,000 c. Income summary 30,000 Dividends 30,000 d. Dividends 30,000 Income summary 30,000

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

________14. A share-based payment transaction is one in which an entity receives goods or services and pays for them a. by issuing its own equity instruments. b. through cash, but the amount is based on the fair value of the entity’s equity instruments. c. either a or b, as a choice given to either the entity or the supplier of the goods or services d. any of these ________15. Which of the following is excluded from the scope of PFRS 2? a. Employee share option plans b. Employee share appreciation rights c. Purchase of goods from an unrelated party in exchange for an entity’s own shares of stocks d. Transfer of equity instruments as consideration for a business combination ________16. On February 1, 20x1, Entity A offered its employees share options subject to the offer being ratified in the shareholders’ general meeting. The share option offer was approved in the shareholders’ general meeting held on March 1, 20x1. Entity A issued the share options on April 1, 20x1. The fair value of the share options vary between these dates. For purposes of PFRS 2, the share options should be valued at the fair value determined on a. February 1, 20x1. c. April 1, 20x1. b. March 1, 20x1. d. any of these ________17. The computation of earnings per share is addressed by a. PAS 36 b. PFRS 3 c. PAS 33 d. PFRS 11 ________18. Earnings per share is not required to be computed on a. profit or loss from continuing operations. b. results of discontinued operations. c. profit or loss for the year. d. other comprehensive income. ________19. The entry to record the share subscriptions is a. a memorandum entry. b. Dr. Common Stock Subscribed; Capital c. Dr. Subscribed Share Capital; d. Dr. Subscribed Share Capital;

issuance of ordinary shares for fully paid Cr. Common Stock; Cr.

Additional Paid-In

Cr. Subscriptions Receivable Cr. Share Capital

________20. The issuance of shares of preferred stock to shareholders a. increases preferred stock outstanding. b. has no effect on preferred stock outstanding. c. increases preferred stock authorized. d. decreases preferred stock authorized.

PROBLEM SOLVING

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

________1. Entity A has the following share capital transactions during the year:  Issued 10,000 shares with par value of ₱10 per share for a total consideration of ₱160,000.  Received share subscriptions for 20,000 shares at a subscription price of ₱22 per share. Only half of the subscriptions were collected by the end of the year. How much is the total share premium arising from the share transactions above? a. 60,000 c. 300,000 b. 320,000 d. 180,000 [160,000 – (10,000 x 10)] + [20,000 x (22 – 10)] = 300,000 ________2. Entity A was incorporated on January 1, 20x1 with an authorized capitalization is ₱1,000,000 divided into 100,000 shares with par value of ₱10 per share. The following were the share-related transactions of Entity A during the year:  Cash subscriptions of 30,000 shares at ₱12 per share.  Subscriptions of 40,000 shares at ₱18 per share. Seventy-five percent of the subscription price was collected during the year. How much is the Entity A’s total shareholders’ equity after recording the transactions above? a. 900,000 c. 540,000 b. 680,000 d. 360,000 Solution: Share capital (30K x 10) Subscribed shares (40K x 10) Subscriptions receivable (40K x 18 x 25%) Share premium (30K x 2) + (40K x 8) Total SHE

300,000 400,000 (180,000) 380,000 900,000

Short-cut: (30,000 x 12) + (40,000 x 18 x 75%) = 900,000 ________3. Entity A’s total shareholders’ equity was ₱900,000 before recording the following share transactions:  Received cash subscriptions for 10,000 shares with par value of ₱1 at ₱14 per share. Share issuance costs amounted to ₱2,000.  Received subscriptions for 20,000 shares at ₱20 per share. Twenty-five percent down payment was collected on subscription date.  Collected the remaining unpaid subscription price of 15,000 subscribed shares and issued the related share certificates. Share issuance costs amounted to ₱3,000. How much is the balance of Entity A’s total shareholders’ equity after recording the transactions above? a. 1,490,000 c. 1,360,000

Page 6 of 13

ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION b. 1,510,000

1ST GRADING PERIOD PART 2

d. 1,610,000

Solution:

 Date Date

 Date

 Date 1. e 2. e

Dat Dat

Cash (10,000 x ₱14) Share capital (10,000 x ₱1) Share premium Share premium Cash Cash (20,000 x ₱20 x 25%) Subscriptions receivable (20K x ₱20 x 75%) Subscribed share capital (20,000 x ₱1) Share premium Cash (15,000 x ₱20 x 75%) Subscriptions receivable Subscribed share capital (15,000 x ₱1) Share capital Share premium Cash

140,000 10,000 130,000 2,000 2,000 100,000 300,000 20,000 380,000 225,000 225,000 15,000 15,000 3,000 3,000

Total SHE before share transactions Share capital (10,000 + 15,000) Subscribed share capital (20,000 - 15,000) Subscription receivable (300,000 – 225,000) Share premium (130,000 – 2,000 + 380,000 – 3,000) Total SHE after share transactions

900,000 25,000 5,000 (75,000) 505,000 1,360,000

Short-cut: 900,000 + (10,000 x 14 – 2,000) + (20,000 x 20 x 25%) + (15,000 x 20 x 75% - 3,000) = 1,360,000

5. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary shares. During 20x1 the corporation had the following capital transactions: Jan. 5 July 14 Dec. 27

Issued 20,000 shares at ₱15 per share. Purchased 5,000 shares at ₱17 per share. Reissued the 5,000 shares held in treasury at ₱20 per share.

Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December 31, 20x1, balance sheet, what amount should Asp report as share premium in excess of par? a. 100,000 b. 125,000 c. 140,000 d. 115,000 Solution: Jan. Cash (20,000 x 15) 5, Ordinary share (20,000 x 10) 20x1 Share premium July Treasury shares (5,000 x 17)

Page 7 of 13

300,000 200,000 100,000 85,000

1ST GRADING PERIOD PART 2

ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION 14, Cash 20x1 Dec. Cash (5,000 x 20) Treasury shares (5,000 x 17) 27, 20x1 Share premium – Treasury shares

85,000 100,000 85,000 15,000

100,000 + 15,000 = 115,000 6. Nest Co. issued 100,000 shares of common stock (i.e., ordinary shares). Of these, 5,000 were held as treasury stock at December 31, 20x1. During 20x2, transactions involving Nest's common stock were as follows:  May 3 - 1,000 shares of treasury stock were sold.  August 6 - 10,000 shares of previously unissued stock were sold.  November 18 - a 2-for-1 stock split took effect. Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2, how many shares of Nest's common stock were outstanding? Solution: Issued 100,000

Issued as of Dec. 31, 20x1

Outstanding 100,000

Treasury shares as of Dec. 31, 20x1

(5,000)

20x2 transactions: May 3 - reissuance of treasury shares Aug. 6 - issuance of new shares Totals Nov. 18 - 2-for-1 share split Ending balances

10,000 110,000 2 220,000

1,000 10,000 106,000 2 212,000

7. Arp Corp.’s outstanding capital stock at December 15, 20x1, consisted of the following:  30,000, 5% cumulative preference shares, par value ₱10 per share, fully participating as to dividends. No dividends were in arrears.  200,000 ordinary shares, par value ₱1 per share. On December 15, 20x1, Arp declared dividends of ₱100,000. What was the amount of dividends payable to Arp’s ordinary stockholders? a. 10,000 b. 34,000 c. 40,000 d. 47,500 Solution: Total dividends declared

100,000

Allocation: Basic allocation to preference shares: (30,000 x 10 x 5%) Basic allocation to ordinary shares: (200,000 x 1 x 5%) Excess subject to participation (100,000 – 15,000 – 10,000) Participation of preference sh. (75,000 x 3/5) Participation of ordinary sh. (75,000 x 2/5) Balance

Page 8 of 13

15,000 10,000 75,000 45,000 30,000 -

1ST GRADING PERIOD PART 2

ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

Total dividends to ordinary shareholders = 10,000 + 30,000 = 40,000

8. The following stock dividends were declared and distributed by Sol Corp.: Percentage of ordinary shares outstanding at declaration date Fair value Par value 10 ₱15,000 ₱10,000 28 40,000 30,800 What aggregate amount should be debited to retained earnings for these stock dividends? a. 40,800 b. 45,800 c. 50,000 d. 55,000 Solution: 10% ('small' dividend) - at fair value 28% ('large' dividend) - at par value Total debit to retained earnings

15,000 30,800 45,800

9. On January 1, 20x4, Entity A has granted 600 share options to each of its 100 employees. The options vest in three years’ time. Each share option has a fair value of ₱100 on grant date. Information on employee departure is as follows: • January 1, 20x4: estimate of employees leaving the entity during the vesting period – 4% • December 31, 20x4: revision of estimate of employees leaving to 5% before vesting date • December 31, 20x5: revision of estimate of employees leaving to 6% before vesting date • December 31, 20x6: actual employees leaving 5% How much is the salaries expense in 20x5? a. 2,000,000 b. 1,900,000 c. 1,860,000 d. 1,840,000 C 20x4: (600 x 100 x 100) x 95% x 1/3 = 1,900,000; 20x5: (600 x 100 x 100) x 94% x 2/3 = 3,760,000 - 1,900,000 = 1,860,000 10. On January 1, 20x1, Entity A grants 100 share options to each of its 100 key employees conditional upon each employee remaining in Entity A’s employ over the next 3 years. The fair value of each share option is ₱15. On the basis of a weighted average probability, Entity A estimates on January 1, 20x1 that about 20 employees (i.e., 20% or 20 out of the 100 employees) will leave during the three-year period and therefore forfeit their rights to the share options.

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ACC 109: INTERMEDIATE ACCOUNTING, PART 4 EXAMINATION

1ST GRADING PERIOD PART 2

During 20x1, 7 employees left. Entity A revises its estimate to a total of 25% employee departure over the vesting period. During 20x2, 9 employees left. Entity A revises its estimate to a total of 28% employee departure over the vesting period. During...