Accounting-Quiz - Course work on law PDF

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TRUE● A convertible preference share is an example of a potential ordinary share ● An entity that reports a discounted operation shall disclose the basic and diluted earnings per share for the discontinued operation either in the statement of comprehensive income or the notes of financial statements...

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A convertible preference share is an example of a potential ordinary share An entity that reports a discounted operation shall disclose the basic and diluted earnings per share for the discontinued operation either in the statement of comprehensive income or the notes of financial statements. Retained earnings represent the undistributed net income of the company. Contributed capital and retained earnings will decrease because of liquidating dividend declaration. If the share dividend is less than 10%, it will be capitalized to retained earnings at par value. Liquidating dividends is a return of capital of the investors. Employee share options with fixed or determinable terms are treated as options in the calculation of diluted earnings per share even though they may be contingent on vesting. An increase in loss per share resulting from the assumption that convertible instruments are converted is considered a dilution. A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions. When a share dividend is declared total shareholders’ equity does not change. When there is no indication of the type of preference shares, we assume that they are cumulative and non-participating. The ordinary shares are entitled to dividends equal to the basic rate of the preferred dividends before the remainder of the dividends are distributed for participation. Share split with neither increase nor decrease retained earnings. Treasury shares may be re-issued as dividends, in which case it will be charged to retained earnings at cost. Retained earnings represent earned capital. An entity shall present basic and diluted earnings per share with equal prominence for all periods presented in the financial statements.

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The declaration and issuance of the share dividend on ordinary shares do not change the retained earnings or ordinary shares. Undistributed share dividend shall be reported as a reduction of total shareholders’ equity. Earning per share is the amount that would be paid on each share assuming that the entity is liquidated. Conversion of preference shares into ordinary shares will not affect the retained earnings account. Basic book value per share shall be calculated by dividing profits or loss attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the period. A share dividend declaration requires a memo entry just like a share split. A call option on ordinary shares are contracts that give the holder the right to sell ordinary shares at a specified price for a given period. Preferred as to dividends means that these preference shares are prioritized in the distribution of shares over the ordinary shares. Preference shares preferred as to assets means that they are entitled only to dividend in arrears. When there is only one class of share capital, the subscription receivable shall be deducted from the subscribed share capital because under the corporation code, whenever there is corporate liquidation, subscription receivable must be paid by the subscriber to be used as payment of liabilities. When a property dividend is declared, the divided payable basis for payment is the property’s value on the declaration date.

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The accounting for a property dividend should be based on the carrying amount of the non-cash asset transferred. An entity declared dividend payable on a certain date, the retained earnings account will decrease on the date of payment. An entity should restate diluted earnings per share of any prior presented for changes in the assumptions used in earnings per share calculations or for the conversion of potential ordinary shares into ordinary shares.

FILL IN THE BLANKS ● The amount appropriated for treasury shares is equal to the cost of the acquired treasury shares. ● The accounting for quasi-reorganization usually include a writedown of assets and an elimination of a deficit in retained earnings. ● An example of a legal reason for the appropriation of retained earnings is the appropriation for treasury shares. ● An example of a contractual reason for the appropriation of retained earnings is the appropriation for preferred share redemption. ● Retained earnings are available for distribution to shareholders unless restricted by contract or statute. ● The appropriations of retained earnings can be made at the discretion of the Board of Directors. ● An example of a voluntary reason for appropriation of retained earnings is the appropriation for plant expansion. ● If the total par value of the ordinary shares issued in exchange exceeds the original issue of the preference shares, the excess is charged against retained earnings. ● The retained earnings appropriated account is created for the purpose of protecting the working capital of the company. ● If the call price of callable preference shares exceeds the original issue price of the said shares, the excess is charged to retained earnings. ● The loss on retirement of treasury shares occurs when the cost of the treasury shares exceeds that par value of the shares retired.

SOLVING ● On january 1, 2020, Universe co. purchased a machine with a cash price of P2,000,000. The supplier can choose how the purchase is to be settled. It can either be by 20,000 shares with par value of P50 within 1 year’s time or a cash payment equal to the market value of 15,000 phantom shares on December 31, 2020. At grant date on January 1, 2020, the market price of each share is P80 and on the date of settlement on December 31, 2020, the market price of each share is P100 1. What is the equity component arising from the purchase of equipment with share and cash alternative? 800000 2. What amount of interest expense should be recognized on December 31, 2020 if the supplier has chosen the cash alternative? 300000 3. What amount should be recognized as share premium on December 31, 2020 of the supplier has chosen the share alternative 1000000 ●

On January 1, 2020, KBS company granted to employees a share-based payment with cash and share alternative. The conditions include the right to a cash payment equal to the value of 10,000 phantom

shares or 15,000 ordinary shares with a par value of P40. the grant is conditional upon the completion of three years after the vesting date. At grant date, the ashare price is P60. at the end of 2020 and 2021 and 2022 the share prices are P63, P66, and P72 respectively. After taking into account the effect of vesting restrictions, the entity estimated that the fair value of the share alternative on the grant date is P45. on january 1, 2023, the employees selected the share alternative. 1. What is the equity component on January 1, 2020 arising from the share-based payment with cash and share alternative? 75000 2. What is the compensation expense for 2022? 280000 3. What amount of share premium should be recorded from the issuance of shares on January 1, 2023? 195000...