c.

Retained earnings sometimes may be increased but never decreased

INTERMEDIATE ACCOUNTING II – FINAL EXAMINATION d. Retained earnings account is always affected unless the sale price is exactly equal to
1st SEMESTER SY 2021-2022 cost
7. When an entity calls in all of the preference shares for more than the original issue price,
SET A.
the excess paid above the original issue price shall be
1. When shares with par value are sold, the proceeds shall be credited to the
a. Accounted for as loss on exchange in the income statement
a. Share capital account
b. Charged against share premium of ordinary shares
b. Share premium
c. Charged against share premium of preference shares
c. Retailed earnings
d. Charged against retained earnings
d. Share capital account to the extent of the par value of the shares issued with any
excess being reflected in share premium 8. An entity issued preference shares with detachable warrants to purchase ordinary shares
at a price that exceeded both the par value and market value of the preference shares. At
2. If shares are issued to extinguish a financial liability, what is the initial measurements of the times the warrant are exercised, the total shareholders’ equity is increased by
the shares issued a. Cash received upon exercise of the share warrants.
a. Par value of the shares issued c. Fair value of the shares issued b. Carrying amount of warrants outstanding.
b. Fair value of liability extinguished d. Book value of the shares issued c. Both the cash received upon exercise of the warrants and carrying amount of
warrants outstanding.
d. Neither the cash received upon exercise of warrants nor the carrying amounts nor the
3. The total cost of treasury shares shall be reported as carrying amount of warrants outstanding.
a. Deduction from shareholders’ equity c. Asset 9. The residual interest in a corporation belongs to
b. Deduction from retained earnings d. Deduction from share premium a. Management c. Creditors
b. Ordinary shareholders d. Preference shareholders
4. Loss on retirement of treasury shares shall be debited to
a. Retained earnings
10. Kara Company provided the following data at year-end:
b. Share premium from treasury share and then retained earnings
Authorized share capital 5,000,000
c. Share premium from treasury shares, share premium from original issuance and then
Unissued share capital 2,000,000
retained earnings
Subscribed share capital 1,000,000
d. Share premium form original issuance, share premium from treasury shares and
Subscription receivable 400,000
then retained earnings.
Share premium 500,000
5. A redeemable preference share is
Retained earnings unappropriated 600,000
a. An equity instrument c. Either an equity instrument or a financial liability
Retained earnings appropriated 300,000
b. A financial liability d. Neither an equity instrument nor a financial liability
Remeasurement Gain on Defined Benefit Plan 150,000
6. Which of the following statements best describes the net effect on retained earnings of Loss on change of fair value attributable to credit risk of a
the purchase and subsequent sale of treasury shares? Financial liability designated at fair value through P/L 250,000
a. Retained earnings may never be increased but sometimes decrease Revaluation surplus 200,000
b. Retained earnings may never be increased or decreased Treasury shares, at cost 100,000

SET B Page 1 of 9
 What total amount should be reported as shareholders’ equity? 5,000,000 14. What is the shareholders’ equity on December 31, 2022? 7,100,000
Kal El Company provided the following data at year-end
Preference Share Capital, 10%, 60,000 shares 6,000,000 15. Serkis Corp was organized at the beginning of the current year with an authorization of
Ordinary share capital, 100,000 shares 5,000,000 1,200,000 ordinary shares with a par value of P6 per share. During the current year, the
Subscribed Preference Share Capital 1,000,000 entity had the following capital transactions:
Subscribed Ordinary Share Capital 600,000 Jan 5 Issued 625,000 shares at P10 per share
Retained Earnings unappropriated 1,200,000 Apr 28 Purchased 90,000 treasury shares at P12 per share
Retained earnings appropriated 450,000 Aug 4 Issued 10,000 shares to Bowe as compensation for 500 hours of legal services
Share Premium - PS 660,000 performed. Bowe usually bills P320 per hour for legal services. On the date of issuance,
Share Premium - OS 850,000 the share was trading on a public exchange at P14.
Share Premium - TS 80,000 Oct 25 Issued 20,000 shares for P100,000
Unrealized Gain Equity Investment – OCI 310,000 Dec 1 Sold the 80,000 shares held in treasury at P18.
Unrealized Loss Debt Investment – OCI 180,000 Dec 31 Net income for the year is P1,825,000.
Subscription Receivable – PS 400,000 Dec 31 Declared a P1.50 per share cash dividend to be paid next year. bonus
Subscription Receivable – OS (currently collectible) 250,000 16. How many shares were outstanding at the end of the current year? 645,000
Treasury Preference Shares at cost 360,000 17. What is the total amount of share premium? 3,060,000
Treasury Ordinary Shares at cost 240,000 18. What is the shareholders’ equity at the end of the current year? 7,707,500/7,700,500
11. What is the contributed capital at year-end? 13,790,000
12. What is the legal capital at year-end? 12,600,000 19. Caper Company disclosed the following shareholders’ equity at the beginning of the
current year:
On January 1, 2017, PennyRoyalTea Corporation began operation by issuing a P7 per share Share Capital, P20 par authorized 50,000, issued & outstanding 30,000 600,000
one-half of the 800,000 ordinary shares of P1 par value that had been authorized for issue. Share Premium 150,000
In addition, the entity had 500,000 authorized preference shares of P5 par value. Retained Earnings 230,000
During 2017, the entity had P825,000 of net income and declared P275,000 of dividend. During the year the following transactions occurred relating to shareholders’ equity
During 2018, the entity had the following chronological transactions:  1,000 shares were reacquired at P28 per share.
 Issued 100,000 ordinary shares for P12 per share.  900 shares were reacquired at P30 per share
 Issued 150,000 preference shares for P8 per share.  1,500 shares of treasury were sold at P32 per share.
 Issued 32,000 ordinary shares and 24,000 preference shares in exchange for land with The entity reported net income of P110,000 for the current year. What amount should be
fair value of P420,000. The market value of shares is the same as the most recent reported as shareholders’ equity at year-end? 1,083,000
issuance.
 Authorized the purchase of a custom-made machine to be delivered in January 2019. 20. Kalinga Company reported the shareholders’ equity at the beginning of current year:
The entity restricted P250,000 of retained earnings for the purchase of the machine. Preference share capital, 100,000 shares, P10 par 1,000,000
 Issued additional 50,000 preference shares for P9 per share. Ordinary share capital, 500,000 shares, P10 par 5,000,000
 Reported P915,000 of net income and declared on Dec 31, 2018 a dividend of Share premium – Preference 50,000
P435,000 to shareholders of record on Jan 15, 2019 to be paid on Feb 1, 2019. Share premium – Ordinary 200,000
13. What is the share premium-OS on December 31,2018? 3,748,000 Retained earnings 100,000
SET B Page 2 of 9
 During the current year, the following transactions were completed:
Retirement of 5,000 preference shares at P11 per share.
Purchase of 5,000 ordinary shares of treasury at P12 per share.
Share split, ordinary share 2 for 1.
Reissue of 2,000 shares of treasury at P10 per share.
Net income for the year, P300,000.
What is the total shareholders’ equity at year-end? 6,555,000
Newton Company was organized on January 1, 2017. On that date, it issued 120,000 ordinary
shares of P10 par value at P16 per share and 8,000 convertible preference shares with P100
par value at P108 per share. One preference share can be converted into five ordinary shares
at the option of the shareholder.
During the period January 1, 2017 through December 31, 2018, the entity reported net
income of P840,000 and paid cash dividend of P390,000.
On January 5, 2018, the entity purchased 12,000 ordinary shares at P12 per share. On
December 31, 2018, 8,000 treasury shares were sold at P8 per share and the remaining
treasury shares were retired.
During 2018, all the preference shares were converted into ordinary shares. The market value
of the ordinary share at the date of conversion was P15.
The entity used the cost method of accounting for treasury shares.
21. What is the share premium on December 31, 2018? 1,176,000
22. What is the total shareholders’ equity on December 31, 2018? 3,154,000
Frances Farmer Corporation issues its 8% P100 par Preference Shares with warrants to
acquire its own ordinary shares to make it more attractive to potential investors. During the
year the following issuance were made:
 20,000 preference shares for P4,250,000 with 20,000 warrants to acquire 10,000 P50
par value ordinary shares at P75 per share. On the date of issuance, the market
values of the preference share ex-warrant is P120 and the warrant is P30. Only
10,000 of the warrants were exercised and the remaining warrants expired.
 30,000 preference shares for P4,650,000 with warrants to acquire 1 P50 par value
ordinary share for every 4 warrants for P65. The market value of the preference
share ex warrant is P125 at the date of issuance. Only 5,000 ordinary shares were
issued for the exercise of the warrants while the remaining warrants expired.
 45,000 preference shares for P5,750,000, together with 45,000 warrants to acquire
15,000 shares, P50 par value ordinary shares at P60 per share. The market value of
the ordinary shares at the time of issuance of preference shares is P85. 27,000
warrants were exercised and the remaining warrants expired.
23. What total amount was allocated to the share warrants as a result of the issuance of
preference shares?
24. What total amount of share premium was credited from the exercise of the warrants?
1,540,000
25. What total amount of was transferred to share premium for the expiration of warrants?
875,000
26. At the beginning of the current year, a shareholder donated to Pixies Corporation land
with fair value of P1,000,000 which cost the shareholder P1,250,000 at the time of
acquisition and 5,000 of its own shares with P100 par. During the current year 2,000 of
the shares were retired and 3,000 were reissued. At the time of reissuance the market
value of the share was P120. The fair value of the land at the end of the current year was
P1,500,000. The accounting policy is to measure land using the revaluation model. The
land was subsequently sold the following year at P1,450,000.
What total amount was recognized in share premium in relation to the donation?
1,560,000
27. At the beginning of the current year, a non-shareholder donated land and 5,000 shares of
another company to Hatfield Corporation. The fair value of the shares at the time of
donation was P200,000 and was to be measured at fair value through other
comprehensive income by the corporation. The land with fair value of P2,000,000 and
carrying amount of P1,800,000 at the time of donation was provided with conditions that
the corporation was to plant a number of trees during the year. By current year-end the
conditions related to the donation were met by the corporation. The land is to be
measured using cost method. The fair value of the shares was P220,000 at current year-
end. These shares were sold the following year for P250,000.
What total amount was recognized in profit/loss in relation to the donation? 2,200,000
28. SUN-60 Corp has 100,000 outstanding shares with P10 par value. During the year, the
entity issued rights to every shareholders to purchase 1 share for every 5 rights held
during a certain period at lower than market rate. 40,000 rights were exercised at P15
per share. Another 45,000 rights were exercised at par. The remaining rights expired.
SET B Page 3 of 9
 What total amount was recognized in share premium in relation to the issuance, c. Smooth periodic income
exercised and expiration of rights? 40,000 d. Restrict earnings available for dividends

29. Treasury shares may be reissued as dividends, in which case what amount should to 35. Retained earnings appropriated account is created for the purpose of
retained earnings? a. Earmarking cash to be used for particular purposes
a. Cost of the treasury shares b. Insuring the payment of dividends
b. Par value of the treasury shares c. Protecting the working capital position
c. Fair value of the treasury shares on the dare of declaration d. Preventing losses from contingencies
d. Fair value of the treasury shares on the date of issuance
36. The use of equity reserve under international accounting standards
a. Is strictly voluntary on the part of the management of an entity
30. Which of the following statements is incorrect concerning retained earnings?
b. Is based on whether a reserve is part of distributable or nondistributable equity.
a. Appropriate retained earnings shall be clearly distinguished from unappropriated
c. Is primarily for the benefit of shareholders rather than creditors.
retained earnings.
d. Results in the elimination of retained earnings from the total shareholders’ equity
b. A deficits is a debit balance in retained earnings.
c. A deficit in retained earning shall be presented as an asset. 37. The accounting for a quasi –reorganization usually includes
d. When the deficit exceeds the total of the other capital account balances, the excess is a. Writeup of assets and writedown of retained earnings
a capital deficiency. b. Writedown of both assets and retained earnings
c. Writedown of assets and elimination of a deficit
31. An entity shall measure a liability to distribute noncash asset as dividend to the owners at
d. Writeup of assets and elimination of a deficit
a. Carrying amount of the asset distributed
b. Fair value of the asset distributed
38. In 2019, Delk Company bought 10,000 shares of Oil Company at a cost of P200,000. On
c. Either the carrying amount nor fair value of the asset distributed
November 1, 2019 Delk Company declared a property dividend of the Oil Company shares
d. Neither the carrying amount nor fair value of the asset distributed
to shareholders of Record on December 1, 2019 payable on December 15, 2019,
The Oil Company shares had the following the market values:
32. A dividend which is a return to shareholders of a portion of their original investment is
Nov 1, 2019 250,000 Dec 1, 2019 260,000 Dec 15, 2019 240,000
a. Liquidation dividend c. Patronage dividend
What is the net charge against retained earnings of the property dividend during 2019
b. Liability dividend d. Participating dividend
including amounts recognized in profit/loss?
33. Total shareholders’ equity remains the same when there is
a. Issuance of preference shares in exchange for convertible debentures Berttie Company provided the following information at the end of the previous year:
b. Issuance of nonconvertible bonds with share warrants Preference share capital, P200 par value, 2,500 shares 500,000
c. Declaration of a stock dividend Share Premium – PS 80,000
d. Declaration of a cash dividend Treasury Preference Shares, 100 shares @ cost 22,500
Ordinary share capital, P50 par value, 12,000 shares 600,000
34. A retained earnings appropriation is used to Treasury Ordinary Shares, 1,500 shares @ cost 90,000
a. Absorb a fire loss when an entity is self-insured Share Premium – OS 60.000
b. Provide for a contingent loss that is probable and measurable Unappropriated Retained Earnings 725,000

SET B Page 4 of 9
 At the beginning of the year, the Board of Directors resolve to pay a 50% share dividend Share capital (P100 par value) 5,000,000 5,100,000
on all shares outstanding. The market value of the preference share is P250 and ordinary Share premium 2,500,000 2,920,000
shares is P25 at the date of declaration of the share dividend. The treasury shares were Retained earnings 5,000,000 ?
issued as share dividends and the balance from the unissued shares. During 2018, the entity declared and paid cash dividend of P750,000 and also declared
Before the end of the year, the Board of directors resolved to pay a cash dividend of 8% and issued a share dividend. There were no other charges in shares issued and
on preference share and a cash dividend of P9 per ordinary share. outstanding during 2018. The net income for 2018 was P1,300,000. What is the balance of
The net income for the current year is P325,000. retained earnings on December 31, 2018? 5,030,000

39. What is the balance of the unappropriated retained earnings at the end of the current Brady Company reported the following shareholders’ equity on January 1, 2020:
year? 443,150 Share capital, P5 par, 600,000 shares authorized,
40. What is the shareholders’ equity as of the end of the current year? 2,090,650 200,000 shares issued and outstanding 1,000,000
Share premium 6,000,000
41. On December 31, 2017, Easy Company decided to give the ten incorporators or original Retained earnings 2,800,000
shareholders a choice between receiving a cash dividend of P500,000 each or a property Total shareholders’ equity 9,800,000
dividend in the form of a noncash asset. The noncash asset is a standard model from the During the current year, the following chronological transactions affected shareholders’
entity’s car fleet. Each car has a fair value of P600,000 and carrying amount of P450,000. equity:
The fair value of the car is P700,000 on December 31, 2018.  Reacquired 10,000 shares at P30 per share to be held as treasury.
The entity estimated that 80% of the ordinary shareholders will take the option of cash  Declared and issued a 30% share dividend.
dividend and 20% will elect for the noncash asset. What is the dividend payable that  Declared and paid cash dividend of P10 per share.
should be recognized on December 31, 2017? 5,200,000  Net income for 2020 amounted to P3,000,000.
46. What amount should be reported as unappropriated retained earnings on December 31,
On December 31, 2020, Stark Mining Company declared a cash dividend of P850,000 to 2020? 2,745,000
shareholders of record on January 15, 2021 and payable on February 15, 2021. The entity Kaiser Company provided the following information for the year ended December 31, 2019
reported the following information on December 31, 2020: Retained earnings – unappropriated, January 1 200,000
Accumulated depletion 280,000 Underdepreciation of 2018 due to prior period error 100,000
Share capital 1,200,000 Net income for 2019 1,300,000
Share premium 360,000 Unrealized Gain on derivative contract as cash flow hedge 200,000
Retained earnings 740,000 Retained earnings appropriated for treasury shares
On December 31, 2021, Stark Mining Company reported net income of P695,000 and (original balance is P150,000. It is increased by P150,000
depletion of P325,000. by reason of acquisition of treasury shares) 300,000
42. What amount should be recognized as liquidating dividend for 2021? 110,000 Retained earnings appropriated for contingencies
43. What is the maximum dividend that can be declared for 2021? 1,190,000 (beginning balance, P700,000. It is decreased by
44. If Stark Mining Company declared a cash dividend of P1,000,000 for 2021, what is the a change of estimate of P450,000) 250,000
shareholders’ equity on December 31, 2021? 1,145,000 Cash dividends paid to shareholders 500,000
Change in accounting policy from FIFO to weighted
45. Kiara Company provided the following data: 12/31/2017 12/31/2018 average method – debit adjustment 250,000
SET B Page 5 of 9
 Revaluation Surplus (original balance is P500,000. It is decreased
by the piecemeal realization of P100,000 at year-end.) 400,000
47. What amount should be reported as unappropriated retained earnings on Dec 31, 2019?
1,050,000
48. What total amount shall be reported as component of reserves at year-end? 1,150,000
Meg Company provided the following information:
 Meg Company reported from the previous year P1,250,000 of appropriated retained
earnings for the construction of a new office building which was completed in the current
year at a total cost of P1,200,000. During the current year, the entity appropriated
P800,000 of retained earnings for the construction of a new plant.
 P2,500,000 of cash was restricted for the retirement of bonds payable due in 2020.
 Dividends on 10,000 cumulative preference shares of 6% P100 par value have not been
declared or paid for 3 years including the current year.
 Treasury shares chronological transactions during the current year:
 Purchased 10, 000 shares as treasury stock at P22 per share. These 10,000 P10
par value shares were originally issued at P 15.
 Sold 5, 000 of the shares at P24 per share.
 Sold 3, 000 shares at P16 per share.
 Retired the 1,000 treasury shares.
 The entity decided to appropriate retained earnings for all loss contingencies that are not
properly accruable by a charge to expense. The following are the Meg Company’s
contingent liabilities:
 The company become involved in a litigation during the current year. In December of the
current year, the court assessed a judgment for P500,000 against Meg Company. The
entity is appealing the amount of judgment and their attorney’s believed it is possible that
the assessment can be reduced by 50%.
 The company is being sued for illness caused to local residents as a result of negligence on
the entity’s part in permitting the local residents to be exposed to highly toxic chemicals
from its plant. The entity’s lawyer stated that it is probable that the entity will lose the
suit and be found liable for a judgment costing the entity anywhere from P120,000 to
P500,000. However, the lawyer estimated that the most probable cost is P350,000
 During the current year, Meg Company became involved in a tax dispute with the BIR on
income taxes filed the previous year. On December 31 of the current year, the entity’s tax
advisor believed that an unfavourable outcome was probable and the best estimate of
additional tax was P300,000, but could be as much as P400,000. Before the current year’s
financial statements were issued, the entity received and accepted a BIR settlement offer
of P350,000.
49. What amount of retained earnings were legally appropriated? 22,000
50. What amount of retained earnings were contractually appropriated? -
51. What amount of retained earnings were voluntarily appropriated? 950,000
52. What total amount of retained earnings should be restricted for dividend? 972,000
53. Adverse financial and operating circumstances warrant that Solid Company should
undergo a quasi-reorganization at year-end. The shareholders’ equity appears as follow:
Share Capital, P25 par, 100,000 shares outstanding 2,500,000
Share Premium 750,000
Retained Earnings (deficit) (1,800,000)
The following information may be relevant in accounting for quasi-reorganization:
 Inventory with cost of P250,000 was recorded at the fair value of P200,000.
 Property, Plant and Equipment were recorded at net amount of P3,200,000. The fair
value was P2,600,000.
 Goodwill of P300,000 is to be written off.
 The receivable of P950,000 net of P150,000 of allowance. The allowance is to be
written off.
 Individual shareholders contribute P1,500,000 to create additional capital to facilitate
reorganization. No new shares are issued.
 The par value of the share is reduced from P25 to P15.
Immediately after the quasi-reorganization, what is the shareholders’ equity? 2,050,000
54. These are transaction in which the entity receive goods or services as consideration for
equity instruments of the entity, including shares and share options.
a. Equity selected share-based payment transactions
b. Cash settled share-based payment transaction
c. Equity payment transactions
d. Cash payment transactions
55. It is the difference between the fair value of the shares to which the counterparty has the
right to subscribe and the price the counterparty is required to pay for those shares.
a. Fair value c. Intrinsic value
b. Market value d. Book value
56. In what circumstances is compensation expense immediately recognized under a share
option plan?
SET B Page 6 of 9
 a. In all circumstances.
b. In circumstances when the options are exercisable within two years for services
rendered over the next two years.
c. In circumstances when the options are granted for prior service and the options are
immediately exercisable.
d. In no circumstances in compensation expense immediately recognized.
57. How is the compensation expense measured for equity settle share-based payments?
a. Use the normal hourly rate of the employees.
b. Measure the intrinsic value of share options as the difference between market price
and exercise price at measurement date.
c. Measure the fair value of share options using an option pricing model.
d. Measure the difference between the market price and the fair value of the share
options
58. For cash settled share-based payment transactions, until the liability is settled, the entity
is required to measure the fair value of the liability at each reporting date and at the date
of settlement and any changes in fair value are
a. Included in profit or loss
b. Included in retained earnings
c. Treated as component other comprehensive income
d. Not to recognized
59. An entity has entered into a contract with another entity which will supply a range of
services. The payment for those services will be in cash based upon the price of the
entity’s ordinary shares on completion of the contract. What type of share-based
payment transaction does this represent?
a. Asset settle share-based payment transaction
b. Liability settle share-based payment transaction
c. Cash settle share-based payment transaction
d. Equity settle share-based payment transaction
60. On January 1, 2019, Xavier Company granted Logan, the president compensatory share
options to buy 12,000 ordinary shares of P10 par value.
The options call for a price of P25 per share and are exercisable in 3 years following the
grant date. Morgan exercised the options on December 31, 2019.
The market price of the share was P60 on January 1, 2019, and P70 on December 31,
2019. The fair value of the share option is P30 on the date of grant.
What is the net increase in shareholders’ equity as a result of the grant and exercise of
the options? 300,000
61. On January 1, 2017, Kangaroo Company granted 25,000 share options to the employees
to acquire ordinary shares of P100 par value for P110. The total compensation expense to
the vesting date on December 31, 2020 had been calculated at P1,250,000. The entity
decided to settle the award early on December 31, 2019.
The compensation expense charged since the date of grant was P225,000 for 2017 and
P390,000 for 2018. The compensation expense that would have been charged for 2019 is
P245,000.
What amount should be recognized as compensation expense for 2019, assuming the
share options are not exercised but instead, the entity paid the employees P1,150,000 on
December 31, 2019? 535,000
62. What amount should be credited to share premium, assuming the share options are
exercised on December 31, 2019? 1,500,000
63. On January 1, 2017, Cromwell Company granted to 8 senior executives 10,000 share
options provided the executive remains in the entity’s employ until December 31, 2019.
However, the share options cannot be exercised unless the share price has increased
from P50 on January 1, 2017 to above P65 on December 31, 2019.
If the share price is above P65 on December 31, 2019, the share options can be exercised
at any time during the next 2 years. The entity applied a binomial option pricing model
and estimated that the fair value of the share options with this market condition on grant
date is P24 per option.
During 2019, 2 senior executives left the company. All options were exercised during
2020.
What is the compensation expense for 2019? 20,000
On January 1, 2017, Alterra 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 P56 and the par value per share is P50.
SET B Page 7 of 9
At the date of grant, the entity concluded that the fair 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, 2017, P66 on December 31, 2018, P71 on December 31, 2019 and P75 on December 31,
2020.
All share options were exercised on December 31, 2020.
64. What is the compensation expense for 2019? 400,000 (di sure)
65. What is the share premium upon exercise of the share options on December 31, 2020?
1,500,000
On January 1, 2020, Magnus Company granted 20 share options to each of the 2,000
employees to buy P50 par value ordinary shares for P75. Each grant is conditional upon the
employee remaining in service for three years.
The fair value of the share option on the date of grant is P45.
On December 31, 2020, 80 employees left the entity and 140 employees are expected to
leave by the end of the vesting period.
On January 1, 2021, the entity repriced the share options by lowering the exercise price.
As a result, the fair value of the share option increased by P10. The modification did not
change the vesting period.
On December 31, 2021, 90 employees left the entity and 60 employees are expected to leave
by the end of the vesting period.
On December 31, 2022, 50 employees actually left the entity.
66. What is the compensation expense on December 31, 2021? 705,000
67. What is the share premium upon exercise of the share options on December 31, 2022?
2,848,000
Norway Company granted 200 share appreciation rights to each of the 500 employees on
January 1, 2014. The rights are due to vest on December 31, 2017 with payment being made
on January 1, 2019. Only 75% of the awards vest.
Share price
January 1, 2014 (Predetermined price) 150
December 31, 2014 160
December 31, 2016 180
December 31, 2017 210
December 31, 2018 195
68. What is the compensation expense on December 31, 2017? 2,812,000
69. What is the accrued compensation on December 31, 2018? 3,375,000
70. On January 1, 2017, Omega Company granted the chief executive officer (CEO) 30,000
share appreciation rights for past services. The rights are exercisable immediately and
expire on December 31, 2018.
On exercise, the CEO is entitled to receive cash for the excess of the share market price on
exercise date over the market price on grant date. The CEO did not exercise any of the
rights in 2017. The market price of the share was P100 on January 1, 2017 and P115 on
December 31, 2017. The CEO exercise the rights on December 31, 2018 when the market
price was P110. What amount should be recognized as gain on reversal of share
appreciation rights in 2018? 150,000
On January 1, 2020, Misty Co granted 80,000 share appreciation rights to the employees. The
vesting period is 4 years. The agreement required the entity to pay cash based on the excess
of market price over the predetermined price of P100.
The market prices per share for December 31, 2020, 2021, 2022, and 2023 are P130, P150,
P140 and P160 respectively.
On December 31, 2021, the entity modified the agreement and canceled the 80,000 share
appreciation rights. Instead, the entity granted 80,000 share options provided that the
employee remains with the entity for the next two years.
On December 31, 2021, the fair value of the share option is P70. The options are exercisable
at the end of the remaining two year-period. The option price is P115 and the par value is
P100. All share options were exercised on December 31, 2023.
71. What is the compensation expense on December 31, 2021? 2,200,000
72. What is the compensation expense on December 31, 2023? 1,400,000
73. What is the share premium upon exercise of the share options on December 31, 2023?
6,800,000
74. On January 1, 2017, Brandon Company granted to an employee the right to choose either:
a. 12,400 shares (share or equity alternative)
b. Cash payment equal to market value of 9,000 shares (cash alternative)
The grant conditional upon the completion of three years of service. If the employees
chooses the share alternative, the shares must be held for three years after vesting date.
The par value of the share is P25 and at the grant date on January 1, 2017, the share price
is P55. The share prices for the three-year vesting period are:
December 31, 2017 57
December 31, 2018 60
SET B Page 8 of 9
 December 31, 2019 66
After taking into account the effects of post-vesting restrictions, the entity has estimated
that the fair value of the share or equity alternative is P48 per share. What is the share
premium if the employee has chosen the share alternative? 382,000

75. On January 1, 2019, Hawks Company purchased an equipment for the cash price of
P2,200,000. The supplier can choose how the purchase is settled. The choices are 25,000
shares with par value of P50 in one year’s time or cash payment equal to the market value
of 17,500 phantom shares at year-end. At grant date on January 1, 2019, the market
price of the share is P118 and on the date of settlement on December 31, 2019, the
market price of each share is P100. CASH PAYMENT – 2,222,500
What amount of interest expense should be recognized on December 31, 2019 if the
supplier has chosen the cash alternative? 157,500

SET B Page 9 of 9