accounting for accuntgina xrisfhghu. 1253 PDF

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Problem 22-Solace Company declared and distributed 10% share dividend with fair value of P1,500,000 and par value of P1,000,000 and 25% share dividend with fair value of P4,000,000 and par value of P3,500,000.What aggregate amount should be debited to retained earnings for the share dividends?a. 4,5...

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Problem 22-14

Solace Company declared and distributed 10% share dividend with fair value of P1,500,000 and par value of P1,000,000 and 25% share dividend with fair value of P4,000,000 and par value of P3,500,000. What aggregate amount should be debited to retained earnings for the share dividends? a. b. c. d.

4,500,000 3,500,000 5,000,000 5,500,000

Solution: 10% share dividend at fair value 25% share dividend at par value

1,500,00 0 3,500,00 0 5,000,00 0

Problem 22-15 Sol Company declared a 10% share dividend. The market price of the 30,000 outstanding shares of P20 par value was P90 per share on declaration date. When the share dividend was distributed, the share market price was P100. What amount should be credited to share premium for the share dividend? a. b. c. d.

210,000 240,000 270,000 300,000

Solution: Market value on date of declaration (10% x 30,000= 3,000x 90) Par value of share dividend (3,000x20) Share premium

270,00 0 60,000 210,00 0

Problem 22-16 During the year, Grey Company issued 4,000 shares with P100 par value in connection with a share dividend. The market value per share on the date of declaration was P150. The shareholder’s equity before issuance of the share dividend was as follows: Share capital, P100 par, 20,000 shares outstanding

2,000,000

Share premium

3,000,000

Retained earnings

1,500,000

What is the retained earnings balance immediately after the share dividend? a. b. c. d.

1,100,000 1,500,000 2,100,000 900,000

Solution: Retained earnings before share dividend Less: Share dividend (4,000x100) Retained earnings after share dividend

1,500,00 0 400,000 1,100,00 0

Problem 22-31 1. Retained earnings represent a. Earned capital b. Cash c. Assets d. Net assets 2. Retained earnings represent a. Undistributed net income b. Undistributed net assets c. Extra contributed capital d. Undistributed cash 3. The total retained earnings balance typically is not affected by a. Net income b. A prior period errors c. Dividends paid d. Restrictions

4. When a property dividend is declared, the dividend payable should be measured based on the fair value of property on a. Record date b. Distribution date c. Declaration date, reporting date and distribution date d. Reporting date 5. The declaration and issuance of a share dividend on ordinary shares a. Has no effects on assets, liabilities and total shareholder’s equity. b. Decreases total shareholders equity and increases ordinary shares. c. Decreases assets and total shareholders’ equity d. Does not change retained earnings or ordinary shares. Problem 22-32 1. Nonstock dividends shall be recognized as liabilities on the a. Date of declaration b. Date of record c. Date of payment d. Date of issuing check 2. When shareholders may elect receive cash in lieu of share dividend, the amount to be charged to retained earnings is equal to the a. Optional cash dividend b. Fair value of the shares c. Par value of the shares d. Book value of the shares 3. Treasury shares may be reissued a dividend, in which case what amount shall be charged to retained earnings? a. Cost of the treasury shares b. Par value of the treasury shares c. Fair value of the treasury shares on the date of declaration d. Fair value of the treasury shares on the date of issuance 4. If the share dividend is less than 29%, how much of the retained earnings shall be capitalized? a. Par value of the shares b. Fair value of the shares on the date of declaration c. Fair value of the shares on the date of record d. Fair value of the shares on the date of issuance 5. At what amount should retained earnings be reduced if the share dividend is 20% or more? a. Zero b. Par value c. Market value at the declaration d. Market value at the date of issuance

Problem 23-11 On January 1, 2020, Eagle company reported P1,750,000 of appropriated retained earnings for the construction of a new office building which was completed in 2020 at a cost of P1,500,000. In 2020, the entity appropriated P1,200,000 of retained earnings for the construction of a new plant. Also, P2,000,000 of cash was restricted for the retirement of bonds payable due in 2021. On December 31, 2020, what amount should be reported as appropriated retained earnings? a. b. c. d.

1,200,000 1,450,000 2,950,000 3,200,000

Problem 23-12 Elvis Company reported the following shareholders equity on January 1, 2020: Share capital, P5 par, 600,000 shares authorized, 200,000 shares issued and outstanding

1,000,000

Share premium

6,000,000

Retained earnings

2,800,000

On January 31, 2000, the entity reacquired 10,000 shares at P30 per share to be held as treasury. On July 1, 2020, the entity declared and issues a 30% share dividend. On December 31,2020, the entity declared and paid cash dividend of P10 per share. The net income for the current year was P3,000,000. What is the unappropriated balance of retained earnings on December 31, 2020? a. b. c. d.

2,745,000 3,045,000 2,700,000 2,600,000

Solution: Shares issued Treasury shares Outstanding shares Share dividend (30% x 190,000) Total outstanding shares

200,000 -10,000 190,000 57000 247,000

Retained earnings Less: Share dividend (57,000 x 5) Less: Cash dividend (247,000 x 10) Net income Appropriation treasury shares (10,000 x30) Unappropriated balance

2,800,000 -285,000 -2,470,000 3,000,000 -300,000 2,745,000

Problem 23-23 At the beginning of the current year, Jade Company showed the following shareholder’s equity: Share capital, 1,500,000 shares

1,500,000

Share premium

15,000,000

Retained earnings

8,100,000

Treasury share, 100,000 at cost

(900,000)

All of the outstanding and treasury shares were originally issued for P11 per share. The treasury shares were reacquired in the previous year. During the current year, the following events or transactions occurred to shareholders” equity: a. February 15- issued 400,000 shares for P12.50 per share. b. June 15- declared a cash dividend of P0.20 per share to shareholders of record on April 1 and payable on April 15. This was the first dividend ever declared. c. September 15- the president retired. The entity purchased from the retiring president 100,000 shares for P13.00 per share which was equal to market value on this date. These shares were canceled. d. December 31- declared a cash dividend of P0.20 per share to shareholders payable in early part of next year. e. On December 31, the entity is being sued by two separate parties for patent infringement. The management and legal counsel share the following opinion regarding these suits: Suit Likelihood of losing the suit Estimated loss #1 Reasonably possible 600,000 #2 probable 400,000 1. What is the increase in share premium arising from the issuance of 400,000 shares on February 15? a. 4,000,000 b. 5,000,000

c. 4,600,000 d. 400,000 Solution: 400,000 x 12.50 = 5,000,000 400,000 x 11.50 = 4,600,000 5,000,000 – 4,600,000= 400,000 2. What is the decrease in share premium arising from the retirement of 100,000 shares on September 15? a. 1,300,000 b. 1,200,000 c. 1,000,000 d. 100,000 Solution: 100,000 x 13.000 = 1,300,000 3. The entity decided to appropriate retained earnings for all loss contingencies that are not properly accruable by a charge to expense. How much of loss contingencies should be appropriated by a charge to unappropriated retained earnings? a. 1,000,000 b. 600,000 c. 400,000 d. 500,000 4. What amount of cash dividend should be charged against unappropriated retained earnings in the current year? a. 700,000 b. 680,000 c. 360,000 d. 340,000 Solution: 1,800,000 x 0.20 1,700,000 x 0.20 Total:

360,000 340,000 700,000

5. What amount should be reported in the notes to financial statements as restriction on retained earnings because of acquisition of treasury shares? a. 200,000

b. 900,000 c. 1,200,000 d. 1,300,000 (Equal to treasury shares) Problem 24-13 At the beginning of current year, Red Company issued share option for 200,000 shares to a division manager. The option has an estimated fair value of P6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increase by 6% in three years. The entity initially estimated that it is probable the goal will be achieved. What is the compensation expense for the current year? a. b. c. d.

800,000 600,000 400,000 0

Solution:

200,000 x 6/3

400,00 0

Problem 24-14 At the beginning of the current year, gray company granted share options to key employees for the purchase of 80,000 ordinary shares at P25, per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period after vesting by the grantees still in the employ of the entity. No options were terminated during the current year, but the entity does not have an experience of 4% forfeitures over the life of the share options. The market price of the share was P31 at the date of the grant. The entity used the binomial pricing model and estimated fair value of each share option at P10. What amount should be reported as compensation expense for the current year? a. 307,200 b. 320,000

c. 384,000 d. 400,000 Solution: 80,000 x 10 x 96%/2

384,00 0

Problem 24-22 On January 1,2020, Jeanne company granted the president compensatory share options to buy 5,000 shares of P100 par value. The options call foe a price of P120 per share and are exercisable for four years following the grant date. The president exercised the options on December 31,2020. The market price of the share was P150 on January 1,2020 and P180 on December 31,2020. The fair value of a similar share option with same terms was P60 on the grant date. 1. What is the compensation expense for 2020? a. 300,000 b. 100,000 c. 150,000 d. 75,000 Solution: 5,000 x 60

300,000

2. By what net amount should shareholders’ equity increase as a result of the grant and exercise of the options? a. 600,000 b. 900,000 c. 500,000 d. 750,000 Solution: 5,000 x 120

600,0 00

Problem 24-28

On January 1, 2020, paranoid company granted to a senior executive 30,000 share options, conditional upon the executive’s remaining in the entity’s employ unit December 31,2022. The par value per share id P50. The exercise price is P100. However, the exercise price drops to P80 if the entity’s earnings increase by at least an average of 10% per year over the three- year period. The entity estimated that the fair value of the share option is P30 if the exercise price is P80. If the exercise price is 100, the fair value of the share option is P25. During 2020 and 2021, the earnings increased by 11% and 12% respectively. However, during 2022, the earnings increased only by 4%. 1. What is the compensation expense for 2020? a. 900,000 b. 450,000 c. 300,000 d. 0 Solution: 2020 Fair value of share options (30,000 x 30) Compensation expense (900,000 / 3)

900,000 300,000

2. What is the compensation expense for 2021? a. 900,000 b. 600,000 c. 300,000 d. 150,000 Solution: 2021 Fair value of share option (30,000 x 30) Cumulative compensation (900,000 / 3x 2) Less: Compensation expense in 2020 Compensation expense for 2021

900,000 600,000 -300,000 300,000

3. What is the compensation expense for 2022? a. 300,000 b. 600,000 c. 150,000

d. 750,000 Solution: 2022 Fair value of shar options (30,000 x 25) Less: Cumulative compensation in 2021 Compensation expense for 2022

750,000 -600,000 150,000

4. What is the share premium upon exercise of the share options on December 31,2022? a. 2,250,000 b. 1,500,000 c. 1,650,000 d. 900,000 Solution: 2022 Exercise price (30,000 x 100) Fair value options Total Less: Par value (30,000 x 50) Share premium upon exercise

3,000,000 750,000 3,750,000 1,500,000 2,250,000

Problem 24-33 1. The compensation associated with share option plan is a. The book value of a share times the number of options b. The estimated fair value of the options c. Allocated to expense upon expiration d. Recorded as expense on the date of grant 2. The most important objective for share option is a. Measuring the compensation expense during the service period. b. Measuring the fair value c. Disclosing increases or decreases in the share option d. Recognition of services rendered 3. Share options should be reported as expense a. Using the intrinsic value method b. Using the fair value method c. Using the fair value or the intrinsic value method d. Only on rare occasions

4. When recognizing compensation under a share option plan, unanticipated forfeitures are treated as a. A change in accounting policy b. A loss c. An income item d. A change in accounting estimate 5. Which statement is true about share options? a. IFRS requires using the intrinsic value method b. If previous experience indicates that share options shall be forfeited before vesting, the fair value estimate on grant date should be adjusted. c. Compensation expenses must be adjusted during the services period to reflect changes in the market price of underlying shares d. All of these statements are true about share options...