Solution Manual 2010

Problem111
1.A
6.C
2.D
7.B
3.C
8.A
4.B
9.A
5.A
10.B
Problem112
1.C
6.B
2.D
7.D
3.D
8.D
4.C
9.C
5.C
10D
Problem113
Fairvalueofoptions(40,000x30)
Annualcompensation(1,200,000/2)
2010
Dec.31
2011
Dec.31
2012
Jan.15
Dec.31
1,200,000
600,000
Salariesshareoptions
Shareoptionsoutstanding
600,000
600,000
Cash(35,000sharesx125)
Shareoptionsoutstanding(35,000x30)
Ordinarysharecapital(35,000x100)
Sharepremium
600,000
600,000
4,375,000
1,050,000
3,500,000
1,925,000
150,000
Sharepremiumunexercisedstockoptions
Problem114
2010
Salariesshareoptions(450,000/2)
225,000
2011
Salariesshareoptions(600,000225,000)
375,000
Salariesshareoptions(30,000x5)
150,000
Cash(30,000x30)
Sharepremium
900,000
750,000
2012
150,000
225,000
375,000
150,000
300,000
1,350,000
Problem115
Compensationexpensefor2010(6,000,000x95%/3)
1,900,000
Cumulativecompensation12/31/2011(6,000,000x94%/3x2)
Less:Compensationrecognizedfor2010
Compensationexpensefor2011
3,760,000
1,900,000
1,860,000
Cumulativecompensation12/31/2012(6,000x95%)
Less:Cumulativecompensation12/31/2011
5,700,000
3,760,000
1,940,000
Problem116
2010
Numberofemployees
Eployeeswholeft
Employeesexpectedtoleave
Employeesentitled
Multiplybyshareoptions
Totalshareoptions
Multiplybyfairvalueofeachoption
Totalfairvalueofshareoptions
300
(20)
(10)
270
200
54,000
50
2,700,000
Compensationexpensefor2010(2,700,000/3)
900,000
2011
Numberofemployees
Employeeswholeftin2010
Employeesentitled
Totalshareoptions
Multiplybyfairvalueeachoption
300
(20)
(8)
(32)
240
200
48,000
50
2,400,000
CumulativecompensationDecember31,2011(2,400,000/3x2)
Less:Compensationrecognizedfor2010
1,600,000
900,000
700,000
2012
Numberofemployees
Employeesentitled
300
(20)
(8)
(25)
247
200
Totalshareoptions
Cumulativecompensation12/31/2012(49,400x50)
49,400
2,470,000
1,600,000
870,000
Problem117
2010
Numberofemployees
Totalshareoptions
Mulitplybyfairvalueeachoption
100
100
10,000
30
300,000
Compensationexpensefor2009(300,000/3)
100,000
2011
Averageincrease(8%+10%/2)
9%
Numberofemployees
Totalshareoptions
Mulitplybyfairvalueofeachoption
100
100
10,000
30
300,000
Cumulativecompensation12/31/2011(300,000/3x2)
200,000
100,000
100,000
2012
Averageincrease(8%+10%+8%/3)
12%
Numberofemployees
Totalshareoptions
100
200
20,000
30
600,000
200,000
400,000
Problem118
Requirement1
2010
Shareoptions
Mulitplybyfairvalueeachoption
10,000
45
450,000
150,000
2011
150,000
Thereisnochangeinthecompensationexpensebecausetheearningstargetofatleastanaverage
of10%isachievedin2011.
2012
Shareoptions
Multiplybyfairvalueeachoption
Cumulativecompensation12/31/2012
10,000
40
400,000
300,000
100,000
Averageincrease(10%+11%+3%/3)
8%
Theearningstargetogatleastanaverageof10%isnotachievedin2012.Thus,theexerciseprice
isP120andthefairvalueofeachshareoptionisP40.
Requirement2
2010
150,000
2011
150,000
100,000
Cash(10,000x120)
Sharecapital(10,000x50)
Sharepremium
1,200,000
400,000
2012
Problem119
2010
Salaries(90,000/3years)
150,000
150,000
100,000
500,000
1,100,000
30,000
30,000
Shareoptions
Mulitplybyintrinsicvalue(6360)
Totalintrinsicvalue
2011
Salaries
30,000
3
90,000
90,000
90,000
2012
Shareoptions
Multiplybyintrinsicvalue(6660)
Totalintrinsicvalue
30,000
6
180,000
Cumulativecompensation12/31/2011(180,000/3x2ye
Compensationrecognizedin2010
120,000
30,000
90,000
Salaries
330,000
330,000
Shareoptions
2013
Salaries
30,000
15
450,000
120,000
330,000
390,000
390,000
Shareoptions
Additionalcompensation
Cash(10,000x60)
Sharepremium
30,000
13
390,000
600,000
280,000
500,000
380,000
Intrinsicvalueperoption(8860)
2014
Salaries
28
240,000
240,000
Shareoptions(30,00010,000)
Multiplybyincreaseinintrinsicvalue(10088)
Additionalcompensation
Cash(15,000x60)
Sharepremium
20,000
12
240,000
900,000
600,000
750,000
750,000
2015
40
50,000
Gainonreversalofshareoptions
50,000
Shareoptions(20,00015,000)
Multiplybydecreaseinintrinsicvalue(10090)
Decreaseinintrinsicvalue
Cash(5,000x60)
Sharepremium
5,000
10
50,000
300,000
150,000
250,000
200,000
30
Problem1110
Shareoptions
Executivesexpectedtobeentitled
Totalshareoptions
10,000
8
80,000
25
2,000,000
Compensationexpense
2010(2,000,000/5)
2011
2012
2013
400,000
400,000
400,000
400,000
1,600,000
2014
Shareoptions
Executivesentitled
Totalshareoptions
10,000
7
70,000
25
1,750,000
1,600,000
150,000
PFRS2,paragraph15,providesthatanetityshallrecognizetheservicesreceivedovertheexpected
vestingperiodasestimatedatgrantdate,andshallnotrevise thatestimate.
However,attheendofthevestingperiod,thetransactionamountisultimatelybasedon70,000share
optionsapplicabletothe7executiveswhoremainattheendofyear5.
Although,anotherexecutiveleftin2015(year6),noadjustmentismadebecausetheexecutivehad
alreadycompletedtheexpectedvestingperiodof5years.
Notealsothatthesharepricetargetisachievedattheendof2015(year6)whichiswithinthe10yearlife
oftheshareoptions.
Problem1111
Requirement1
2010
Salaries
300,000
300,000
Salaries
400,000
Salaries(1,500,000700,000)
800,000
Cash(20,000x110)
Sharepremium
Requirement2
2012
Dec.31
Salaries
Cash
Problem1112
1.Purchases
AccountsPayable
2.Accountspayable
Interestexpense
Cash
Sharepremium
400,000
800,000
2,200,000
1,500,000
2,000,000
1,700,000
700,000
600,000
1,300,000
1,000,000
900,000
100,000
900,000
100,000
60,000
960,000
100,000
Cashpayment(8,000x120)
Liabilitycomponent
Impliedinterest
3.Accountspayable
Sharepremium
Problem1113
Requirement1
960,000
900,000
60,000
900,000
100,000
500,000
500,000
Fairvalueofsharealternative(25,000sharesxP48)
Fairvalueofliability(20,000sharesxP51)
Equitycomponent
1,200,000
1,020,000
180,000
Requirement2
Fairvalueofliability12/31/2010(20,000xP54)
1,080,000
Compensationexpensefor2010fromliabilitycomponent(1,080,000/
Compensationfromequitycomponent(180,000/3)
Totalcompensationexpensefor2010
360,000
60,000
420,000
1,320,000
Accruedliability12/31/2011(1,320,000/3x2)
Compensationexpensein2010fromliabilitycomponent
Compensationexpensefromequitycomponent
880,000
360,000
520,000
60,000
580,000
Accruedliability12/31/2011
Compensationexpensefromequitycomponent
1,300,000
880,000
420,000
60,000
480,000
Requiremtn3
2010
Salaries
Accruedsalariespayable
2011
2012
420,000
360,000
60,000
Salaries
580,000
Salaries
480,000
Requirement4
2012
Dec.31
Cash
Sharepremium
Requirement5
520,000
60,000
420,000
60,000
1,300,000
180,000
1,300,000
180,000
2012
Dec.31
Sharepremium
180,000
1,300,000
750,000
730,000
Problem1114
2010
Salaries
40,000
Accruedsalariespayable(20,000x6=120,000/3)
2011
2012
Salaries
40,000
200,000
200,000
Totalcompensation(20,000x18)
360,000
AccruedcompensationDecember31,2011(360,000/3x
Less:AccruedcompensationDecember31,2010
Adjustment
240,000
40,000
200,000
Salaries
180,000
180,000
Adjustment
420,000
240,000
180,000
Cash
420,000
420,000
Problem1115
2010
Noentry
2011
Salaries
80,000
80,000
120,000
AccruedcompensationDecember31,2011(120,000/3x
2012
Salaries
Less:Accruedcompensation
Adjustment
80,000
170,000
170,000
250,000
80,000
170,000
Cash
250,000
250,000
Problem1116
2010
Salaries
600,000
Accruedsalariespayable(80,000x30/4)
2011
2012
2013
2014
Salaries
600,000
Salaries
600,000
600,000
600,000
Salaries
3,000,000
(80,000x60=4,800,0001,800,000)
4,800,000
Cash(80,000x40)
Gainonreversalofshareappreciationrights
Problem1117
2010
Salaries
Accruedsalariespayable(50,000x15)
750,000
2011
750,000
Cash(50,000x8)
Gainonreversalofappreciationrights
600,000
3,000,000
3,200,000
1,600,000
750,000
400,000
350,000
Problem1118AnswerA
300,000
Compensationfor2010(300,000/2)
150,000
Problem1119AnswerD
800,000
Compensationfor2010(800,000/2)
400,000
Problem1120AnswerC
(1,000x50)
Problem1121AnswerC
Fairvalueofshareoptions(10,000x5x50)
50,000
2,500,000
625,000
Problem1122AnswerA
Fairvalueofshareoptions(100,000x8)
800,000
Iftheoptionsvestimmdiately,thetotalfairvalueofthesahreoptionsshallberecognized
immdiatelyinfullasexpense.
SincetheoptionsaregrantedonJanuary1,2010andexercisableonJanuary1,2010,itmeansthat
thatshareoptionsvestimmediately.
Problem1123AnswerB
(10,000x24/3)
Problem1124AnswerD
2010
FairValueofshareoptions(500x100x30)
2011
Numberofemployees
Employeesentitledtoshareoptions
Fairvalueofshareoptions(440x100x30)
Cumulativecompensationfor2010and2011(1,320,000/3x2)
Compensationexpenserecognizedin2010
Compensationexpensein2011
2012
Numberofemployees
Problem1125AnswerC
2010
80,000
1,500,000
500,000
500
(30)
(30)
440
1,320,000
880,000
(500,000)
380,000
500
(30)
(20)
450
1,350,000
(880,000)
470,000
900,000
300,000
ThefairvalueofshareoptionisP30becausethesalesisincreasedby11%in2010.
2011
900,000
600,000
(300,000)
300,000
ThefairvalueoftheshareoptionisstillP30becausethesalesincreasedby12%in2011oran
averageof11.5%fortwoyears.
2012
Cumulativecompansation12/31/11
750,000
(600,000)
150,000
ThefairvalueofshareoptionosonlyP25becausethesalesincreasedby4%in2012oranaverage
of9%onlyfor3years(11%plus12%nplus4%dividedby3equals9%).
Problem1126AnswerD
2010
Fairvalueofshareoptions(300x200xP30)
Compensationexpensefor2010(1800000/3)
1,800,000
600,000
Thesalesincreasedby10%in2010andtherefore,eachemployeeisentitledto200shareoptions.
2011
2,700,000
Cumulativecompensation12/31/11(2,700,000/3x2)
1,800,000
(600,000)
1,200,000
Eachemployeeisentitledto300shareoptionsbecausethesalesincreasedby15%in2011.
2012
Numberofemployees
Fairvalueofshareoptions(250x300xP30)
300
(50)
250
2,250,000
(1,800,000)
450,000
Eachemployeeisentitledto300shareoptionsbecausethesalesincreasedby15%in2012.
Problem1127AnswerB
Theintrinsicvaluemethidisfollowedifthefairvalueoftheshareoptionscannotbemeasured
reliably.Theintrinsicvalueisequaltotheexcesofthemarketpriceoftheshareover
theoptionprice.
2010
MarketPrice
OptionPrice
Intrinsicvaluepershareoption
62
60
2
Intrinsicvalueofshareoptions(60,000x2)
120,000
Compensationexpensefoe2010(120000/3)
40,000
Theintinsicvalueofshareoptionsisrecognizedasexpenseoverthevestingperiod,notover
thelifeofshareoptions.
2011
Intrinsicvalueofshareoptions(6660=6x60,000)
360,000
240,000
(40,000)
200,000
2012
Intrinsicvalueofshareoptions(7560=15x60,000)
900,000
(240,000)
660,000
2013
Marketprice12/31/2013
Marketprice12/31/2012
Increaseinintrinsicvalue
85
75
10
Compensationexpensefor2013(60,000x10)
600,000
Problem1128AnswerD
2010
1,800,000
600,000
ThesalesrevenueofP4,500,000in2010iswithintheLevel2rangeandtherefore,
theemployessareentitledto20,000shareoptions.
2011
2,700,000
Cumulativecompensation12/31/11(2,700,000/3x2)
1,800,000
(600,000)
1,200,000
ThesalesrevenueofP5,500,000in2011iswithinLevel3rangeandtherefore,
theemployeesareentitledto30,000shareoptions.
2012
2,700,000
(1,800,000)
900,000
ThesalesrevenueofP7,000,000in2012iswithintheLevel3rangeandtherefore,
uponvestingtheemployeesareentitledto30,000shareoptions.
Problem1129AnswerB
Problem1130AnswerC
(8,000,0002,000,0002,100,000)
Problem1131AnswerB
Cashpayment
Shareoptionsoutstanding(1,500,000+1,300,000)
3,900,000
5,000,000
(2,800,000)
2,200,000
Probem1132AnswerA
Torecordthecompensationfor2010:
Salaries(10,000x30)
300,000
300,000
Observethattheoptionsvestimmediately andthereforethetotalfairvalueoftheshareoptions
isrecognizedasexpenseinfullin2010.Theeffectoftheaboveentryonshareholders'equityis
offsetting.
TorecordtheexerciseoftheoptionsonDecember31,2010:
Cash(10,000x20)
200,000
300,000
100,000
Sharepremium
400,000
Theeffectoftheaboveentryonshareholders'equityisanetincreaseofP200,000,equal
tothecashreceived.
Problem1133AnswerC
MarketpriceDecember31,2010
PredeterminedpriceonJanuary1,2010
Intrinsicvalue
Compensationfor2010(20,000x15)
Problem1134AnswerC
MarketpriceDecember31,2011
Predeterminedprice
Excess
45
30
15
300,000
28
20
8
AccruedcompensationDecember31,2011
(30,000x8=240,000/3x2years)
160,000
Problem1135AnswerD
180,000
AccruedcompensationDecember31,2010(180,000/3)
Totalcompensationfor2011(10,000x12)
AccruedcompensationDecember31,2011(120,000/3x2)
60,000
120,000
80,000
60,000
20,000
Problem1136AnswerC
Compensationexpensefor2010(100,000x10x90%=900,000/3)
300,000
Problem1137AnswerC
Accruedcompensation12/31/2010(50,000x24=1,200,000/3)
400,000
Accruedcompensation12/31/11(50,000x51=2,550,000/3x2)
Accruedcompensation12/31/10
1,700,000
(400,000)
1,300,000
Accruedcompensation12/31/12(50,000x51)
2,550,000
(1,700,000)
850,000
Problem1138AnswerC
1,600,000
Thecompensationisrecognizedasexpenseentirelyin2010because
therightsareexercisableimmediately.
Salaries
1,600,000
1,600,000
2011
Decreaseinaccruedcompensation
1,200,000
(1,600,000)
(400,000)
1,600,000
Cash
Gainonreversalofshareappreciationrights
Problem1139AnswerA
Sharealternative(15,000x45)
Cashalternative(10,000x60)
Equitycomponent
FairvalueofcashalternativeonDecember31,2012(10,000x72)
Totalconsideration
Parvalueofsharesissued(15,000x40)
Sharepremium
1,200,000
400,000
675,000
600,000
75,000
720,000
795,000
600,000
195,000
Problem1140
Question1AnswerC
Fairvalueofequipmentequaltothecashpurchaseprice
Fairvalueofliability(15,000sharesx80)
Equitycomponent
Theentrytorecordtheacquisitionoftheequipmentis:
Equipment
Accountspayable
2,000,000
(1,200,000)
800,000
2,000,000
1,200,000
800,000
Question2AnswerC
Fairvalueofliability12/31/10(15,000x100)
Fairvalueofliability1/1/10
Impliedinterest
Theentrytorecordthepaymentofaccountspayableis:
Accountspayable
1,500,000
(1,200,000)
300,000
1,200,000
Interestexpense
Cash
Sharepremium
Question3AnswerB
Theentrytorecordtheissuanceofthesharesis:
Accountspayable
Sharepremium
300,000
800,000
1,500,000
800,000
1,200,000
800,000
1,000,000
1,000,000

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