Problem Set for Finals A32 PDF

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D Company was organized with authorized capital of 200,000 shares of P300 par value, at the beginning of current year. The entity issued 40,000 shares at P340 a share in January 10. March 25, issued 1,000 shares for legal services when the fair value was P360 a share. D Company also issued on Septem...

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Group 1. Problem 1. D Company was organized with authorized capital of 200,000 shares of P300 par value, at the beginning of current year. The entity issued 40,000 shares at P340 a share in January 10. March 25, issued 1,000 shares for legal services when the fair value was P360 a share. D Company also issued on September 30, 10,000 shares for a tract of land when the fair value was P380 a share. 1. What amount should be reported for share premium? a. 2,400,000 b. 2,040,000 c. 2,460,000 d. 840,000 2. What amount should be reported as share capital? a. 6,200,000 b. 15,300,000 c. 13,000,000 d. 6,000,000 Solution Question 1 Answer C January 10

(40,000 x 40)

1,600,000

March 25

( 1,000 x 60 )

60,000

September 30

(10,000 x 80)

Total Share Premium

800,000 2,460,000

Question 2 Answer B January 10

(40,000 x 300)

12,000,000

March 25

( 1,000 x 300)

300,000

September 30 (10,000 x 300) Share Capital

3,000,000 15,300,000

Group 1. Problem 2. At the beginning of current year, Zayn Company had the following balances related to a defined benefit plan: Fair value of plan assets 4,550,000 Projected benefit obligation 5,250,000 The actuary provided the following data for the current year: Current service cost 450,000 Settlement discount rate 9% Expected return on plan assets 7% Actual return on plan assets 600,000 Contribution to the plan 700,000 Benefits paid to retirees 90,000 1. What amount should be reported as employee benefit expense? Current service cost Interest expense (9% x 5,250,000) Interest income (9% x 4,550,000) EMPLOYEE BENEFIT EXPENSE

450,000 472,500 (409,500) 513,000

Group 2. Problem 1. 1. When it comes to accounting for shareholder's equity, which of the following would the accountant be primarily concerned? a. Making sure that the directors do not declare dividends in excess of retained earnings b. Determining the total amount of shareholders' equity c. Recording the source of each of the various elements of the shareholders' equity d. Distinguishing between realized and unrealized revenue Answer is c. Group 2. Problem 2. 1. On January 1, 2020 Rylce Company granted share options to each of the 350 employees working in the Sales Department. The share options vest at the end of a three-year period provided that the employees remain in the entity and provided the volume of sales will increase by more than 10% per year. The fair value of each share option on the grant date is ₱ 50. If the sales increase by more than 10%, each employee will receive 150 share options. If the sales increased by more than 15%, each employee will receive 300 share options. On December 31, 2020 the sales increased by more than 10% but not more than 15% and no employees left. On December 31, 2020 the sales increased by more than 15% and no employees have left. What amount should be recognized as compensation expense for 2021? a. 2,625,000 b. 875,000

c. 5,250,000 d. 3,500,000

Answer is a Solution 2020 Fair Value of share options (350 x 150 x 50) Compensation expense 2020 (2,625,000/3) 2021 Fair value of share options (350 x 300 x 50) Cumulative compensation expense (5,250,000/3 x2) Compensation expensed recognized in 2020

2,625,000 875,000

5,250,000 3,500,000 (875,000)

Compensation expense 2021

2,625,000

Group 3. Problem 1. Azreil Company was incorporated at the beginning of the current year and provided the following information: Jan. 1 Number of shares authorized 150,000 April 1 Number of shares issued 110,000 Aug. 1 Number of shares reacquired but not cancelled 15,000 Dec. 1 Two for one share split What is the number of ordinary shares outstanding at year-end? a. 140,000 b. 191,000 c. 190,000 d. 150,000 Solution: Issued Treasury

(110,000 x 2) (15,000 x 2)

220,000 (30,000) 190,000

Group 3. Problem 2. Zane Company revealed the following shareholders’ equity: Preference share capital, P100 par 2,300,000 Share premium-preference shares 805,000 Ordinary share capital, P15 par 5,250,000 Share premium-ordinary shares 2,750,000 Subscribed ordinary share capital 500,000 Subscription receivable-ordinary shares 400,000 Retained earnings 1,900,000 What is the amount of legal capital? a. 8,050,000 b. 7,650,000 c. 9,950,000 d. 11,605,000 Solution: Preference share capital Ordinary share capital Subscribed share capital Total legal capital

2,350,000 5,250,000 500,000 8,050,000

Group 4. Problem 1. On January 1, 2020, ABC Company reported fair value of plan assets at P5,450,000 and projected benefit obligation at P6,500,000. On the same year, the entity determined that the current service cost was P1,100,000 and the discount rate is 12%. The entity provided the following information during the year related to the defined benefit plan Past Service Cost Contribution to the plan Actual Return Benefits to retirees Decrease in projected benefit obligation due to change in actuarial assumptions

300,000 1,100,000 700,000 1,400,000 200,000

What amount is the projected benefit obligation at year end? a. 6,954,000 b. 8,354,000 c. 7,080,000 d. 8,880,000 Answer: Solution:

C. 7,080,000

PBO – January 1 Current Service Cost Past Service Cost Interest Expense (12% x 6,500,000) Decrease in PBO Benefits Paid PROJECTED BENEFIT OBLIGATION – 12/31

6,500,000 1,100,000 300,000 780,000 ( 200,000 ) (1,400,000 ) 7,080,000

Group 4. Problem 2. At the beginning of the current year, ABC Company issued 10,000 ordinary shares of P25 par value and 20,000 convertible preference shares of P25 par value for a total of P950,000. At this date, the ordinary share was settling for P40, and the convertible preference share was selling for P30. What is the share premium for the issuance of preference shares? a. 170,000 b. 70,000 c. 50,000 d. 30,000 Answer: Solution:

B. 70,000

Ordinary Shares Preference Shares

(10,000 x 40) (20,000 x 30)

Proceeds from Preference Shares Preference Shares – Par Value

Market Value

Fraction

Proceeds

400,000 600,000 1,000,000

40/100 60/100

380,000 570,000 950,000

(20,000 x 25)

SHARE PREMIUM – PREFERENCE SHARES

570,000 500,000 70,000

Group 5. Problem 1. At the beginning of the current year, Canaille Company issued 15,000 ordinary shares of P20 par value and 25,000 convertible preference shares of P20 par value for a total of P900,000. At this date, the ordinary share was selling for P30 and the convertible preference share was selling for P22. What amount of the proceeds should be allocated to the ordinary shares? a. b. c. d.

450,000 300,000 405,000 400,000

Solution: Ordinary (15,000 x 30) Preference (25,000 x 22)

Market Value 450,000 550,000 1,000,000

Fraction 45/100 55/100

Allocated Proceeds 405,000 495,000 900,000

Group 5. Problem 2. 1. In what circumstances is compensation expense immediately recognized under share option plan? a. b. c. d.

In circumstances when options are exercisable within two years for services rendered In all circumstances. In no circumstances In circumstances when options are immediately exercisable

Group 6. Problem 1. At the beginning of the current year, Raia company issued 25,000 ordinary shares of P25 par value and 20,000 convertible preference shares of P20 par value for a total of P800,000. At this date, the ordinary share was selling P38 and the convertible preference share was selling for P24. What amount should be recorded as share premium from the issuance of ordinary shares? Solution: Market Value

Allocated Proceeds

Ordinary Shares

950,000

531,468.53

Preference Shares

480,000

268,531.47

1,430,000

Proceeds from ordinary shares Par value of ordinary shares (25,000*25) Share Premium - Ordinary Shares

800,000

531,468.53 500,000.00 31,468.53

Group 6. Problem 2. At the beginning of the current year, Cute Mae Diria Company was authorized to issue share capital of 100 shares with 50 par value. The entity had following share capital transactions during the year. January 1- Sold 60 000 shares at P₽60 per share May 1 - Reacquired 3 000 treasury shares at P₽65 per share July 1 - Approved a share split of 5 for 1 October 1- Issued 10% share dividend when the market value of a share is P₽25. December 31 - Reissued of all the treasury shares at P₽30. December 31 - Net Income of the year was 3 000 000. Shares issued as Split (60 000 x 5) Treasury shares as Split (3000 x 5) Outstanding shares 10% Share dividend Reissuance of treasury share Total outstanding shares

300 000 (15 000) 285 000 28 500 2 000 333 000

Group 7. Problem 1. At the beginning of current year, Ashe Company was organized with authorized share capital of 100,000 shares of P200 par value. During the year, the entity had the following transactions affecting shareholders’ equity: January 10 Issued 20,000 shares at P220 a share March 25 Issued 1,000 shares for legal services when the fair value was P250 a share. September Issued 5,000 shares for a tract of land when the fair value was P260 a share 1. What amount should be reported as share premium at year-end? a.800, 000 b.540, 000 c.500, 000 d.750, 000 January 10 (20,000x20) March 25 (1,000x50) September 30 (5,000x60) Total Share Premium

400,000 50,000 300,000 750,000

Group 7. Problem 2. Glee Company revealed the following shareholders’ equity: Preference share capital, P100 par 2,500,000 Share premium- preference shares 805,000 Ordinary share capital, P15 par 5,250,000 Share premium-ordinary shares 2,750,000 Subscribed ordinary share capital 500,000 Subscription receivable- ordinary shares 400,000 Retained earnings 1,900,000 1. a. b. c. d.

What is the amount of legal capital? 8,250,000 7,650,000 9,950,000 11,605,000

Preference share capital Ordinary share capital Subscribed share capital Total legal capital

2,500,000 5,250,000 500,000 8,250,000

Group 8. Problem 1. Stuart Company provided the following information at year end: Preference share capital, P 100 par

3,000,000

Share premium – preference share

500,000

Ordinary share capital, P10 par

6,000,000

Share premium- ordinary share capital

2,000,000

Subscribed ordinary share capital

4,000,000

Retained earnings

2,500,000

Subscription receivable- ordinary share

1,000,000

1.) What is the amount of legal capital?

13,000,000

Sol’n Preference share capital

3,000,000

Ordinary share capital

6,000,000

Subscribed ordinary share capital

4,000,000 13,000,000

Group 8. Problem 2. YZ Company was organized at the beginning of current year with 100,000 authorized shares of P100 par value and issued 75,000 shares at 140 per share. During the year, the entity purchased 5,000 shares at P110 per share. The entity used the par value method to record the purchase of the treasury shares.

1. What is the balance of the share premium from treasury shares at year end? 150,000

Treasury shares (5k x 100)

500,000

Share premium-issuance (5k x 40)

200,000

Cash (5,000 x110)

550,000

Share premium-treasury shares balancing

150,000

2. What is the balance of the share premium from the original issuance of shares at yearend? 2,800,000 Sol’n Cash (75,000 x140)

10,500,000

Share capital (75,000 x 100)

7,500,000

Share premium-issuance

3,000,000

3,000,000 – 200,000 = 2,800,000...