IRS CPA REVIEW

Iloilo City and Leganes, Iloilo

AUDITING (PROBLEMS) BOOK VALUE PER SHARE

EXERCISE

Problem No. 1

The stockholders’ equity of Endless Corporation on December 31, 2016 shows the following balances:

Preference shares, 12% P100 par P 1,000,000

Ordinary shares, P100 4,000,000
Share premium 1,500,000
Retained earnings 1,000,000
Donated capital 500,000

Dividends have been paid on the preference shares up to December 31, 2014.

After examining the above information you are to determine the book value per share of ordinary shares
and preference shares under each of the following conditions with respect to preference shares:

1. Cumulative and fully participating

a. 128.30 and 145.45 c. 176.40 and 187.50
b. 157.60 and 168.60 d. 178.25 and 189.40

Answer: B
Preference Share Ordinary Share Excess over par
1,000,000 4,000,000 3,000,000
240,000 (240,000)
480,000 (480,000)
1,696,000/10 6,304,000/40 2,280,000
= 169.10 = 157.6

2. Cumulative and fully participating after ordinary receives 15%

a. 168.00 and 128.00 c. 158.20 and 167.20
b. 157.60 and 169.60 d. 178.25 and 189.40
Answer: C
Preference Share Ordinary Share Excess over par
1,000,000 4,000,000 3,000,000
240,000 (240,000)
600,000 (600,000)
432,000 1,728,000 1,296,000
1,672,000/10 6,328,000/40 3,456,000
= 169.10 = 158.2

3. Cumulative and participating up to 16%

a. 168.00 and 128.00 c. 158.20 and 167.20
b. 157.60 and 169.60 d. 178.25 and 189.40
Answer: A
Preference Share Ordinary Share Excess over par
1,000,000 4,000,000 3,000,000
240,000 (240,000)
40,000 (40,000)
2,240,000
(480,000)
1,280,000/10 6,220,000/40 2,240,000
= 128 = 168
 4. Cumulative and nonparticipating
a. 155.50 and 112.50 c. 168.00 and 145.00
b. 169.00 and 124.00 d. 188.00 and 155.00
Answer: B
Preference Share Ordinary Share Excess over par
1,000,000 4,000,000 3,000,000
240,000 (240,000)
2,760,000
1,240,000/10 6,760,000/40 2,760,000
= 124 = 169

5. Noncumulative and nonparticipating

a. 150.00 and 104.00 c. 180.00 and 120.00
b. 172.00 and 112.00 d. 190.00 and 145.00
Answer: B
Preference Share Ordinary Share Excess over par
1,000,000 4,000,000 3,000,000
120,000 (120,000)
2,880,000
1,120,000/10 6,880,000/40
= 112 = 172

Problem No. 2

Tarr Corporation’s stockholders’ equity at December 31, 2016 consisted of the following:
Preference shares -- 12% P50 par, 20,000 shares issued P 1,000,000
Ordinary shares, P25 par, 100,000 shares issued 2,500,000
Share premium 200,000
Retained earnings 400,000
Retained earnings appropriated for contingencies 500,000
Revaluation surplus 300,000

Dividends on preference shares have been in arrears since 2014. The preference share has a liquidating
value of P55 per share and a call price of P58 per share.

After considering the above information, you are to answer the following questions:

6. What is the book value per preference share?

a. 61 c. 55
b. 56 d. 58
Answer: A

7. What is the book value per ordinary share?

a. 30.00 c. 34.00
b. 32.80 d. 35.40
Answer: B

Preference Share Ordinary Share Excess over par

1,000,000 2,000,000 1,000,000
100,000
120,000 (120,000)
780,000
1,220,000/20 3,280,000/100 780,000
= 61 = 32.8
Problem No. 3

Hoyt Corporation’s current balance sheet reports the following stockholders’ equity:

5% cumulative preference shares, par value P100 per share;

25,000 shares issued and outstanding 2,500,000
Ordinary shares, par value P35 per share; 100,000 shares
Issued and outstanding 3,500,000
Share premium in excess of par value of ordinary shares 1,250,000
Retained earnings 3,000,000

Dividends in arrears on the preference shares amount to P250,000. If Hoyt were to be liquidated, the
preferred stockholders would receive par value plus a premium of P500,000.

8. The book value per ordinary share is

a. 77.50 c. 72.50
b. 75.00 d. 70.00
Answer: D
9. The book value per preference share is
a. 105 c. 130
b. 110 d. 140
Answer: C

Preference Share Ordinary Share Excess over par

2,500,000 3,500,000 4,250,000
500,000 (500,000)
250,000 (250,000)
3,500,000
3,250,000/25 7,000,000/100 3,500,000
= 130 = 70

Problem No. 4

TR Company was organized on January 1, 2016 with the following capital structure:

10% cumulative preference share, par value P10, liquidation value P12, authorized; issued and
outstanding 100,000 shares, P1,000,000.

Ordinary shares, par value P100, authorized 40,000 shares, issued and outstanding 30,000 shares,
P3,000,000.

The net income for the year ended December 31, 2016 was P6,000,000 and no dividends were declared.

10. What is the December 31, 2016 book value per ordinary share?
a. 290 c. 300
b. 293 d. 333
Answer: A
Preference Share Ordinary Share Excess over par
1,000,000 3,000,000 6,000,000
200,000 (200,000)
100,000 (100,000)
5,700,000
8,700,000/30 5,700,000
= 290
Problem No. 5

The stockholders’ equity of Retro Company on December 31, 2016 includes the following:
 12% Preference shares, 20,000 shares, P100 par value 2,000,000
14% Preference shares, 10,000 shares P 300 par value 3,000,000
Ordinary shares, 50,000 shares, P100 par value 5,000,000
Retained earnings 2,240,000
Share premium 1,500,000

The 12% stock is cumulative and fully participating. The 14% stock is noncumulative and fully
participating. Dividends in arrears are for 3 years.

11. What is the book value per share of ordinary share?

a. 132 c. 100
b. 126 d. 112
Answer: A
Ordinary Share
5,000,000
600,000
1,000,000
6,600,000
= 132

Problem No. 6

The following are selected accounts on the books of Sunrise Company on December 31,
20l6:

Preference share, 12% cumulative and fully participating P100

par, of 20,000 shares, issued l5,000 shares which l,000
shares are in the treasury 1,500,000
Treasury preference share, at cost 110,000
Subscribed preference share 200,000
Subscriptions receivable-preference share 130,000
Ordinary shares, par value P100, authorized 50,000 shares
Issued 30,000 shares of which, 1000 shares are reacquired 3,000,000
Treasury ordinary shares, at cost 70,000
Subscribed ordinary share 500,000
Subscriptions receivable-0rdinary 200,000
Share premium 300,000
Retained earnings unrestricted 968,000
Retained earnings appropriated 880,000

The last dividend payment to preference share was made in 2011.

After examining the above information you are to answer the following question:

12. How much is the issued and outstanding preference share at December 31, 2016?

a. P1,500,000 c. P1,700,000
b. P1,600,000 d. None of these
Answer: B

13. How much is the issued and outstanding ordinary share at December 31, 2016?

a. P3,000,000 c. P3,400,000
b. 3,500,000 d. None of these
Answer: C

14. How much is the book value per preference share at December 31, 2016?
 a. P162 c. P167
b. P172 d. None of these
Answer: B

15. How much is the book value per ordinary share at December 31, 206?

a. P124 c. P126
b. P144 d. none of thee
Answer: A

Preference Share Ordinary Share Excess over par

1,600,000 3,400,000 1,968,000
960,000 (960,000)
192,000
408,000 (408,000)
408,000
2,752,000 4,216,000/34 600,000
= 172 = 124

End
 IRS CPA REVIEW
Iloilo City and Leganes

AUDITING (PROBLEMS) SHARE-SHARED PAYMENT

EXERCISE

Problem No.1

On January 1,20l6, stock options are granted to employees to purchase 100,000 shares of P50
par value ordinary at P60 per share. On this day, the fair value of the each stock option is P20.
The options are exercisable immediately. The employees exercised all their stock options on
December 31, 2016, when the market value of the ordinary is P90 per share.

1. The salaries expense for 2016 is

a. 0 c. 1,500,000
b. 1,000,000 d. 2,000,000
Answer: D
100,000 x 20 = 2,000,000

Problem No. 2

January 1, 2015, stock options are granted to officers to purchase 100,000 shares of P50 per
value ordinary at P60 per share. The fair value of each stock option is P15. The officers are
entitled to the stock options only after completing two years of service. The options can be
exercised starting January 1, 2017 and expire one year after. All stock options are exercised on
December 31, 2017.

2. The annual compensation for the year 2016 is

a. 1,500,000 c. 750,000
b. 1,000,000 d. 500,000
Answer: C
(100,000x15) = 1,500,000/2 = 750,000

Problem No. 3

On January 1, 2014, Altera Company granted 60,000 share options to employees.

The share options will vest at the end of three years provided the employees remain in service
until then. The option price is P60 and the par value per share is P50. At the date of grant, the
entity concluded that the far value of the share options cannot be measured reliably. The share
options have a life of 4 years which means that the share options can be exercised within one
year after vesting.

The share prices are P62 on December 31, 20l4, P66 on December 31, 2015, P75 on December
31, 2016 and P85 on December 31, 2017. All share options were exercised on December 31,
2017.

3. What is the compensation expense for 2017?

a. 900,000 c. 660,0000
b. 600,000 d. 0
Answer: B
2017
(85-75) = 10x60,000 = 600,000
Problem No. 4

XYZ Company granted a stock appreciation right to the general manager on January
1,20l6. After a four-year service period, the employee is entitled, to receive cash to the
appreciation in share price over the market value on January 1, 2016. Thus, the market value on
January 1,20l6 is the predetermined price for purposes of determining the compensation. The
stock appreciation right had the following terms.

a. Service period – January 1, 2016 to December 31, 2019

b. Number of shares – 20,000 shares
c. Exercise date – January 1, 2020

The quoted prices of the entity’s stock are:

January 1, 2016 200

December 31, 2016 210
December 31, 2017 220
December 31, 2018 240
December 31, 2019 250

4. The compensation expense in 2016 is

a. 50,000 c. 150,000
b. 100,000 d. 200,000
Answer: A
= 200,000/4 = 50,000

5. The compensation expense in 2017 is

a. 50,000 c. 150,000
b. 100,000 d. 200,000
Answer: C

Problem No. 5

At the beginning of 20l5, the entity grants 100 shares each to 500 employees condition upon the
employees remaining in the entity employ during the vesting period. The shares will vest at the
end of 20l5 if the entity’s earning increase by more than 18 percent; at the end of 20l6 if the
entity searing increase by more than an average of l3 per cent per year over the two-year
period, and at the end of 2017 if the entity’s earnings increase by more than an average of 10
percent per year over the three-year period. The shares have a fair value of P30 per share at the
start of 2015, which equals the share price at grant date. No dividends are expected to be paid
over the three-year period.

By the end of 2015, the entity’s earnings have increased by 14 per cent, and 30 employees have
left. The entity expects that earnings will continue to increase at a similar rate in 2016m and
therefore expects that the shares will vest at the end of 2016. The entity expects, on the basis of
a weighted average probability that a further 30 employees will leave during 2016, and
therefore expects that 440 employees will vest in 100 shares each at the end of 2016.

By the end of 2016, the entity’s earnings have increased by only 10 per cent and therefore the
shares do not vest at the end of 2016. 28 employees have left during the year. The entity
expects that a further 25 employees will leave during 2017, and that the entity’s earnings will
increase by at least 6 percent, thereby achieving the average 10 per cent per year.

By the end of 2017, 23 employees have left and the entity’s earnings had increased by 8 per
cent, resulting in an average increase of 10.67 per cent per year. Therefore, 419 employees
received 100 shares at the end of 2017.
 After considering the above information, you are t determine the following:

6. The remuneration expense for the year 2015

a. 330,000 c. 550,000
b. 440,000 d. 660,000
Answer: D

7. The remuneration expense for the year 2016

a. 174,000 c. 1,050,000
b. 187,000 d. 1,251,000
Answer: A

8. The remuneration expense for the year 2017

a. 330,000 c. 547,000
b. 423,000 d. 660,000
Answer: B
9. The cumulative remunerative expense as of 2016

a. 756,000 c. 956,000
b. 834,000 d. 1,056,000
Answer: B

10. The cumulative remuneration expense as of 2017

a. 1,251,000 c. 1,471,000
b. 1,257,000 d. 1,450,000
Answer: B

Problem No. 6

At the beginning of 2015, Entity A grants share options to each of its 100 employees working in the sales
department. The share options will vest at the end of 2017, provided that the employees remain in the
entity’s employ, and provided that the volume of sales of a particular product increases by at least an
average of 5 per cent per year. If the volume of sales of the product increases by an average of between
5 per cent and 10 per cent per year each employee will receive 100 share options. If the volume of sales
of the product increases by an average of between 10 per cent and 15 per cent each year, employees
will receive 200 share options. If the volume of sales increases by an average of 15 per cent each year,
employee will receive 200 share options. If the volume of sales increases by an average of 15 per cent or
more, each employee will receive 300 share options.

On grant date, Entity A estimates that the share options have a fair value of P20 per option. Entity A also
estimates that the volume of sales of the product will increase by an average between 10 per cent and
15 per cent per year, and therefore expects that, for each employee who remains in service until the
end of 2017, 200 share options will vest. The entity also estimates, on the basis of a weighted average
probability, that 20 per cent of employees will leave before the end of 2017.

By the end of 2015, seven employees have left and the entity still expects that a total of 20 employees
will leave by the end of 2017. Hence, the entity expects that 80 employees will remain in service for the
three-year period. Product sales have increased by 12 per cent and the entity expects this rate of
increase to continue over the next 2 years.

By the end of 2016, a further five employees have left, bringing the total 12 to date. The entity now
expects only three more employees will leave during 2017, and therefore expects a total of 15
employees will have left during the three-year period, and hence 85 employees are expected to remain.
Product sales have increased by 18 per cent, resulting in an average of 15 per cent over the two years to
date. The entity now expects that sales will average 15 per cent or more over the three year period, and
hence expects each sales employee to receive 300 share options at the end of 2017.

By the end of 2017, a further two employees have left. Hence, 14 employees have left during the three-
year period, and 86 employees remain. The entity’s sales have increased by an average of 16 per cent
over the three years. Therefore, each of the 86 employees receives 300 share options.

After considering the above information, you are to determine the following:

11. The remuneration expense for the year 2015

a. 56,333 c. 233,333
b. 106,667 d. 267,667
Answer: B

12. The remuneration expense for the year 2016

a. 106,667 c. 267,667
b. 233,333 d. 333,333
Answer: B

13. The remuneration expense for year 2017

a. 146,000 c. 189,000
b. 176,000 d. 201,500
Answer: B

14. The cumulative remuneration expense as of 2016

a. 163,000 c. 340,000
b. 263,000 d. 432,000
Answer: C

15. The cumulative remuneration expense as of 2017

a. 418,000 c. 534,000
b. 516,000 d. 547,000

Answer: B
 IRS CPA REVIEW
Iloilo City and Leganes, Iloilo

AUDITING (PROBLEMS) EARNINGS PER SHARE

EXERCISE
Problem No. 1

Karla Corporation provided the following information for the year 2016:

Preference shares, P100 par, 10% cumulative, 10,000 shares 1,000,000

Ordinary shares, P100 par, 50,000 shares 5,000,000
Net income for the year 2,000,000

1. How much is the basic earnings per share?

a. 30 c. 42
b. 38 d. 46
Answer: B
2000-1000
50
= 38

Problem No. 2

Deaton Inc. had 300,000 ordinary shares issued and outstanding at December 31, 2015. On July 1, 2016,
an additional 50,000 ordinary shares were issued for cash. Deaton also had issued unexercised stock
options to purchase 40,000 ordinary shares at P15 per share outstanding at the beginning and end of
2016. The average market price of Deaton’s ordinary share was P20 during 2016.

2. What number of shares should be used in computing diluted earnings per share for the year
ended December 31, 106?
a. 325,000 c. 360,000
b. 335,000 d. 365,000
Answer: B
40,000x15 = 600,000/2000 = 300,000 300,000 x 12/12 = 300,000
50,000 x 6/12 = 50,000
40,000-30,000 = 10,000
335,000

Problem No. 3

Sarapova Corporation provided the following information for 2016:

10% convertible bonds payable, each P1000 bond

Convertible into ordinary shares 4,000,000
Ordinary shares, P100 par, 250,000 shares authorized,
100,000 shares issued 10,000,000
Net income 5,000,000
Income tax rate 35%

After examining the above information you are to answer the following questions:

3. How much is the basic earnings per share?

a. 45.50 c. 52.35
b. 50.00 d. 56.40
Answer: B
5000/100 = 50
 4. How much is the diluted earnings per share?
a. 37.57 c. 44.60
b. 38.50 d. 50.00
Answer: A
5000+260
100+140
= 5260/140
= 37.57

5. Assume that the convertible bond payable is issued on April 1, 2016, how much is the basic
earnings per share?
a. 35.00 c. 51.50
b. 50.00 d. 62.25
Answer: B
5000/100 = 50

6. Assume that the convertible bond payable is issued on April 1, 2016, how much is the basic
diluted per share?
a. 21.65 c. 32.50
b. 26.75 d. 39.96
Answer: D
5000+95
100 + 30
= 39.96
Problem No. 4

ABC Corporation provided the following information:

Net income 5,000,000

Ordinary shares, P100 par, 100,000 shares 10,000,000
Employee stock options:
Option shares 30,000
Option price 150
Average market price 250

7. How much is the diluted earnings per share?

a. 43.34 c. 46.56
b. 44.64 d. 47.75
Answer: B
5,000,000
7,000,000 + 112,000
= 44.64

Problem No. 5

XYZ Company provided the following information:

Net loss (5,000,000)
Ordinary shares, P100 par, 100,000 shares 10,000,000
Preference shares, P100 par, 10% cumulative, 20,000
Shares convertible into 40,000 ordinary shares 2,000,000

After examining the above information you are to answer the following questions:

8. How much is the basic loss per share?

a. (50) c. (54)
b. (52) d. (55)
Answer: B
 (5000+200) / 100 = 52
Problem No. 6

Graff Company provided the following information:

Net income
2015 1,375,000
2016 1,762,000
2017 2,400,000

Ordinary shares outstanding prior to rights issue 50,000

Rights issue during 2015-one new ordinary share
for each 5 outstanding or a total of 10,000
Date of exercise rights April 1, 2016
Market value of shares immediately prior to exercise
of rights (mv of share right-on) 110
Exercise or subscription price 50