UNION CHRISTIAN COLLEGE

City of San Fernando, La Union

School of Business and Sciences

Accountancy Program

MOCK BOARD EXAMINATION

SY 2019-2020

Instructions: Kindly encircle the correct letter using black or blue ball pen. Double encircling,
erasures, usage of pencil and friction pen in encircling means wrong.

1. On December 31,2020, Zebra Company showed the following shareholder’s equity:

Share capital, P100 par, 100,000 shares
authorized 50,000 shares issued 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000
Treasury shares, 5,000 at cost 600,000

On December 31,2020, Zebra Company declared a cash dividend of P30 per share to shareholders of
record on January 15,2021 and payable on January 31,2021.
Required:
Prepare journal entry on December 31,2020, January 15,2021 and January 31,2021.

2. On January 1,2020, Leilanie Company reported the following shareholder’s equity:

Share capital 1,500,000
Share premium 3,000,000
Retained earnings 5,000,000

The entity had 400,000 authorized shares of P5 par value, of which 300,000 shares were issued and
outstanding.

On March 1, 2020, the entity acquired 50,000 shares for P10 per share to be held as treasury.
The shares were originally issued at P8 per share. The entity used the cost method to account for
treasury shares.

On July 1,2020, the entity declared a property dividend of inventory payable on March 1,2021.

The inventory had a P1,200,000 carrying amount and a fair value of P1,500,000 on July 1,2020,
P1,800,000 on December 31,2020 and P2,000,000 on March 1,2021.
The net income for 2020 was P3,000,000.

Required:
Prepare journal entries for 2020 and 2021 in connection with treasury shares, property dividend and net
income.
3. Oriental Company showed the following balances at year-end:
Wasting asset 8,000,000
Accumulated depletion 1,000,000
Share capital, P100 par 5,000,000
Capital liquidated 500,000
Retained earnings 1,200,000

The Board of Directors declared a dividend of P30 per share at year-end.

Required:
Prepare journal entry for the declaration of the dividend and the subsequent payment.

4. On January 1,2020, Easy Company had ordinary and preference shares outstanding.
The incorporators or original shareholders own ten ordinary shares but no preference shares.

On December 31,2020, the entity declared dividends on the ordinary shares’ payable on July 1,2021.
The entity decided to give the ordinary shareholders a choice between receiving a cash dividend in the
form of a noncash asset.
The noncash asset is a standard model from the car fleet.
Each car has a fair value of P600,000 and carrying amount of P400,000.
Th e entity estimated that 80% of the ordinary shareholders will take the option of the cash dividend
and 20% will elect for the noncash asset.

Required:
1. Prepare journal entries for 2020 and 2021 assuming the shareholders have chosen the cash
alternative.
2. Prepare journal entries for 2020 and 2021 assuming the shareholders have chosen the noncash
alternative and the fair value of the car did not change.

5. Valerie Company showed the following data:

Share capital, per value P100, 50,000
shares issued 5,000,000
Share premium 200,000
Retained earnings 2,000,000
Market value of share on declaration date 150
Market value of share on distribution date 170

Required:
For each of the following, prepare journal entries on the date of declaration and date of payment:
1. A 20% share dividend is declared.
2. A 10% share dividend is declared.
6. Michelle Company showed the following data:
Preference share capital, par value P20, 100,000 shares
authorized, 50,000 shares issued 1,000,000
Ordinary share capital, par value P10, 200,000 shares
authorized, 100,000 shares issued 1,000,000
Retained earnings 2,000,000
Market value of share on date of declaration:
Preference share 30
Ordinary share 15

Required:
For each of the following prepare journal entries on the date of declaration and date of payment:
a. A 10% ordinary share dividend is declared on ordinary share.
b. A 50% ordinary share dividend is declared on ordinary share.
c. A 10% ordinary share dividend is declared on both ordinary and preference share.
d. An ordinary share dividend is declared whereby each ordinary shareholder shall receive one ordinary
share for every five shares held.
In view of the ratio of new shares to old shares, it is necessary that fractional share warrants be issued
to various shareholders calling for 3,000 shares.

Only 90% of the warrants are turned in and the remainder lapsed.

7. National Company provided the following transactions:

2020
September
15 Declared a 20% share dividend on 100,000 shares, par value P10
The shares were originally sold at 15.

Distributed the share dividend declared on September 15 which

October 15 included fractional warrants for 2,000 shares.
One thousand five hundred shares were issued for
December 1 fractional warrants.
The remaining warrants expired.

2021

September Declared scrip dividend of P2 per share payable on November 15,

15 2021 with interest at 12%
November
15 Paid the scrip dividend
Declared a dividend of 1 share of Sharp Company on every
December 1 share of National Company owned.
Sharp Company shares are carried at a cost of P3 per share and
the market value is P4 per share.
 Distributed the Sharp Company shares to shareholders.
31 The market value of Sharp Company share is P6.

Required:
Prepare journal entries to record the transactions.

8. East Company had sufficient retained earnings in 2020 as a basis for dividends but was temporarily
short of cash.
The entity declared a dividend of P100,000 on April 1,2020 and issued promissory notes to its
shareholders in lieu of cash.
The notes which were dated April 1,2020, had a maturity date of March 31,2021 and a 10% interest
rate.

How should the scrip dividend and related interest be accounted for?
a. Debit retained earnings P110,000 on April 1,2020.
b. Debit retained earnings P110,000 on March 31,2021.
c. Debit retained earnings P100,000 on April 1,2020 and debit interest expense P10,000 on March
31,2021.
d. Debit retained earnings P100,000 on April 1,2020 and debit interest expense P7,500 on December
31,2020.

9. During 2020, Ray Company reported the following cash dividends on the P10 par value share capital:
The 4th quarter cash dividend was declared on December 20,2020 to shareholders of record December
31,2020 payable on January 31,2021.
1st quarter 800,000
2nd quarter 900,000
3rd quarter 1,000,000
4th quarter 1,100,000

In addition, the entity declared a 10% share dividend on December 1,2020 when there were 300,000
shares issued and outstanding and the market value was P25 per share on declaration date and P30
distribution date.

1. What total amount was charged against retained earnings for the dividends?
a. 3,800,000
b. 4,550,000
c. 4,700,000
d. 4,100,000
2. What amount was credited to share capital for the share dividend?
a. 300,000
b. 750,000
c. 450,000
d. 0
3. What amount was credited to share premium for the share dividend?
a. 600,000
b. 450,000
c. 300,000
d. 0
10. Kiara Company provided the following shareholders’ equity at year-end:
2020 2021
Share capital
(100 par value) 5,000,000 5,100,000
Share premium 2,500,000 2,900,000
Retained earnings 5,000,000 ?

During 2021, the entity declared and paid cash dividend of P750,000 and also declared and issued a
share dividend.
There were no other changes in shares issued and outstanding during 2021. The net income for 2021
was P1,500,000.

What amount should be reported as retained earnings on December 31,2021?

a. 5,250.000
b. 5,750,000
c. 5,650,000
d. 6,500,000

11. Beauty Company provided the following information:

Preference share capital, P500 par value,2,200 shares 1,100,000
Treasury preference shares, 100 shares at cost 110,000
Ordinary share capital, no par, 3,000 shares at issue price 600,000
Retained earnings 2,500,000

The Board of Directors resolve to pay a 100% share dividend on all shares outstanding capitalizing
amounts of retained earnings equal to the par value and the issue price of the preference and ordinary
shares outstanding, respectively.

Subsequently, the Board of Directors resolved to pay a cash dividend of 10% on preference share and a
cash dividend of P10 per ordinary share.

What is the shareholders’ equity after effecting the dividend transactions?

a. 4,090,000
b. 3,810,000
c. 3,820,000
d. 3,955,000

12. Budd Company had 700,000 ordinary shares authorized and 300,000 shares outstanding at the
beginning of current year.

January 31 Declared 10% share dividend

June 30 Purchased 100,000 shares
August 1 Reissued 50,000 shares
November Declared 2 for 1 share split
 30

How many ordinary shares are outstanding at year-end?

a. 560,000
b. 600,000
c.630,000
d. 660,000

13. At the beginning of current year, Franta Company was authorized to issue share capital of 100,000
shares with P50 par value. The entity had the following share capital transactions during the year:
January 1 Sold 80,000 shares at P60 per share
May 1 Reacquired 4,000 treasury shares at P65 per share
July 1 Approved a share split of 5 for 1
Declared and issued a 10% share dividend when the market
October 31 value of a share is P25
December
31 Reissued all of the treasury shares at P30
December
31 Net income for the year was P3,000,000

1. What is the number of shares outstanding at year-end?

a. 418,000
b. 438,000
c. 440,000
d. 422,000
2. What amount should be reported as share capital at year-end?
a. 4,000,000
b. 4,380,000
c. 3,800,000
d. 3,760,000
3. What total amount should be reported as share premium at year-end?
a. 1,370,000
b. 1,710,000
c. 1,400,000
d. 1,970,000
4 What is the total shareholders’ equity at year-end?
a. 8,140,000
b. 7,800,000
c. 7,560,000
d. 8,400,000

14. As a result of an agreement with bondholders, Malice Company is required to appropriate earnings
of P200,000 at the end of each calendar year for the years 2016-2020.
At the beginning of 2021, upon liquidation of the bonded indebtedness of P1,000,000, the retained
earnings appropriation is canceled.
This is followed by the declaration and the issue of a 30% share dividend on 250,000 outstanding shares
with P10 par value. The market value is P15 per share.

Required:
Prepare all indicated entries for the annual appropriation of retained earnings, payment of bonds
payable, cancellation of appropriation and issuance of share dividend.

15. The board of directors of Mazda Company decided to embark on a substantial plant expansion.
To demonstrate the need to retain assets in the entity, the board agreed on December 31,2020 to
authorize an appropriation of retained earnings in the amount of P5,000,000, the anticipated cost of
plant expansion.

The plant was partially constructed on December 31,2021 and the board decided to reduce the
appropriation by P3,000,000 the cost incurred to date.
Finally, in July 2022, the plant was completed and the remaining portion of the appropriation was
removed.

Required:
Prepare journal entries to record, reduce and finally remove the appropriation.

16. On January 1,2020, Susan Company disclosed the following shareholders’ equity:

During the current year, the entity had the following transactions:
1. In February, the entity reacquired 6,000 shares for P90 per share.
2. In June, the entity sold 3,000 shares of its treasury for P120 per share.
3. In September each shareholder was issued for each share held one stock right to purchase two
additional shares for P140 per share. The rights expire on December 31,2020.
4. In October, 10,000 stock rights were exercised when the market value was P150 per share.
5. On December 15,2020, the entity declared the first cash dividend to shareholders of P20 per share,
payable on January 10,2021, to shareholders of record on December 31,2020.
6. On December 21,2020, the entity formally retired 2,000 treasury shares.
7. Net income for the current year was P540,000
8. Appropriated retained earnings equal to the cost of treasury shares.

Required:
a. Prepare journal entries to record the transactions.
b. Prepare a statement of changes in equity for the year ended December 31,2020.
c. Present the shareholders’ equity on December 31,2020.

17. On January 1,2020, Marimar Company reported the following shareholders’ equity:
Share capital
P100 par 6,000,000
Share premium 500,000
Retained earnings 1,800,000

Transactions during the year and other information relating to shareholders’ equity accounts were as
follows:
1. On January 26, the entity reacquired for cash 5,000 shares for P110 per share.
2. On April 4, the entity sold for cash 3,000 shares of treasury for P140 per share.
3. On June 1, the entity declared a cash dividend of P20 per share, payable July 5, to shareholders of
record on July 1.
4. On November 1, the entity declared a 2 for 1 split and changed the par value from P100 to P50. On
November 20, shares were issued for the share split.
5. On December 5. 4,000 shares were just issued in exchange for a second hand equipment. The
equipment originally cost P400,000 was carried by the previous owner at a carrying amount of P200,000
and was fairly valued at P260,000.
6. Net income for the current year was P1,730,000
7. Appropriated retained earnings equal to the cost of treasury shares.

Required:
a. Prepare journal entries to record the transactions.
b. Prepare a statement of changes in equity for the year ended December 31,2020
c. Present the shareholders’ equity on December 31,2020

18. On January 1,2020, Nissan Company had an ordinary share capital of 4,000,000 authorized shares
with P20 per value, of which 1,000,000 shares were issued and outstanding
The shareholders’ equity on January 1,2020 revealed the following balances:
Ordinary share
capital 20,000,000
Share premium 6,000,000
Retained earnings 5,000,000

Transactions during the year and other information relating to shareholders’ equity accounts were:
1. On January 5, the entity issued at P54 per share, 100,000 preference shares with P50 par value and
9% cumulative. Each preference share is convertible at the option of the holder, into two ordinary
shares. The entity had 400,000 authorized preference shares.
2. On February 1, the entity reacquired 10,000 ordinary shares at P32 per share.
3. On April 30, the entity sold 250,000 ordinary shares at P34 per share.
4. On June 18, the entity declared a cash dividend of P2 per ordinary share, payable on July 12, to
shareholders of record on July 1.
5. On November 19. The entity sold 5,000 shares of treasury for P42 per share.
6. On December 15, the entity declared the yearly cash dividend on preference share capital, payable on
January 14,2021 to shareholders of record on December 31,2020.
7. The net income for the current year was P3,500,000
8. Appropriated retained earnings equal to the cost of treasury shares.

Required:
a. Prepare journal entries to record the transactions.
b. Prepare a statement of changes in equity for 2020
c. Present the shareholders’ equity on December 31,2020
19. Subic Company has suffered substantial operating losses for several years.
The entity’s ability to service debts and pay operating expenses has been impaired.
Consequently, the owners, and creditors have decided to execute a quasi-reorganization.
The statement of financial position of Subic Company prior to the organization is as follows:

ASSETS

Ordinary share
capital 20,000,000
Share premium 6,000,000
Retained earnings 5,000,000

Cash 200,000
Accounts receivable 300,000
Inventory 500,000
Property, plant and equipment 9,900,000
Accumulated depreciation (3,100,000)
Goodwill 1,200,000

Total assets 9,000,000

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable 1,100,000
Note payable 500,000
Mortgage payable 4,200,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
Share premium 1,000,000
Retained earnings (2,800,000)
Total Liabilities and shareholders' equity 9,000,000

The entity provided the following information in relation to the quasi-reorganization:

1. An independent appraisal of the entity’s inventory reveals goods with carrying amount of P150,000 to
be obsolete and worthless.
2. Equipment costing P2,000,000 and with accumulated depreciation of P1,200,000 is expected to be
sold for P300,000.
However, the holder of the note payable agrees to accept the equipment in full satisfaction of the note.
3. The goodwill is to be written off as loss.
4. The mortgage holder agrees to accept 40,000 new preference shares with P100 par value in
satisfaction of the liability.
5. The par value of the ordinary share is reduced to P20
6. The resulting deficit is offset against the share premium.
Required:
a. Prepare journal entries to give effect to the quasi-reorganization.
b. Prepare a statement of financial position immediately after the reorganization.

20. Bacolod Company approved the following reorganization at year-end:

1. The preference share capital is to be exchanged for P2,000,000 of 10% debenture bonds.
2. Goodwill is to be written off.
3. The property, plant and equipment are appraised by independent expert at a replacement cost of
P12,000,000.
The SEC approved the revaluation of the property, plant and equipment to give effect to the
reorganization.
4. The resulting deficit is to be offset against the revaluation surplus.

Statement of financial position at year end

Assets
Cash 425,000
Other current assets 1,325,000
Property, plant and equipment 8,000,000
Less accumulated depreciation 2,000,000 6,000,000
Goodwill 500,000

Total assets 8,250,000

Liabilities and Shareholders' Equity

Current liabilities 20,000,000
Preference share capital, 12% cumulative P100 par 1,500,000
Ordinary share capital, 50,000 shares, P100 par 5,000,000
Share premium 750,000
Retained earnings (1,000,000)

Total liabilities and shareholders' equity 8,250,000

Required:
a. Prepare journal entries to give effect to the reorganization.
b. Prepare a statement of financial position after the reorganization.

21. On January 1,2020, Rama Company had 20,000 treasury shares of P5 par value that had been
previously acquired at P12 per share.

In May 2020, the entity reissued 15,000 of these treasury shares at P10 per share. The cost method is
used to record treasury transactions.

On December 31,2020, what amount should be reported in the notes to financial statements as a
restriction of retained earnings as a result of the treasury share transactions?
a. 5,000
b. 10,000
c. 60,000
d. 90,000

22. Elvis Company reported the following shareholders’ equity on January 1,2020:
Share capital, P5 par, 600,000 shares authorized,
200,000 shares issued and outstanding 1,000,000
Share premium 6,000,000
Retained earnings 2,800,000

On January 31,2020, the entity declared and paid cash dividend of P10 per share. The net income for the
current year was P3,000,000.

What is the unappropriated balance of retained earnings on December 31,2020?

a. 2,745,000
b. 3,045,000
c. 2,700,000
d. 2,600,000

23. Cerritos Company began operation on January 1,2017.

During the first three years of operations, Cerritos Company reported net income of P800,000 for 2017,
P2,500,000 for 2018 and P3,000,000 for 2019.
The entity also declared and paid dividends of P1,00,000 for 2018 and P1,000,000 for 2019.
Income before income tax 4,800,000
Prior period adjustment-understatement
of 2018 depreciation before tax 400,000
Cumulative decrease in income from change
in inventory method before tax 700,000
Dividend declared (of this amount, P500,000 will
be paid on January 15,2021) 2,000,000
Income tax rate 30%

What amount should be reported as retained earnings on December 31,2020?

a. 4,890,000
b. 5,450,000
c. 6,000,000
d. 5,660,000

24. Adverse financial and operating circumstances warrant that Solid Company should undergo a quasi-
reorganization at year-end.
The following information may be relevant in accounting for the quasi-reorganization:
 Inventory with a fair value of P2,000,000 id currently recorded in the accounts at cost of
P2,500,000
 Plant assets with a fair value of P7,000,000 are currently recorded at P8,500,000 net of
accumulated depreciation
 Individual shareholders contribute P4,000,000 to create additional capital to facilitate the
reorganization. No new shares are issued.
  The par value of the share is reduced from P25 to P5.

Share capital, P25 par, 100,000 shares

outstanding 2,500,000
Share premium 1,750,000
Retained earnings (deficit) 3,000,000

After the quasi-reorganization, what amount should be reported as share premium?

a. 2,750,000
b. 3,250,000
c. 3,750,000
d. 1,750,000

25. At the beginning of current year, Jade Company showed the following shareholders’ equity:
Share capital 1,500,000 shares 1,500,000
Share premium 15,000,000
Retained earnings 8,100,000
Treasury shares, 100,000 at cost 900,000

All of the outstanding and treasury shares were originally issued for P11 per share. The treasury shares
were reacquired in the previous year.

During the current year, the following events or transactions occurred relating to shareholders’ equity:
a. February 15- issued 400,000 shares for P12.50 per share.
b. June 15- declared a cash dividend of P0.20 per share to shareholders of record on April 1 and payable
on April 15. This was the first dividend ever declared.
c. September 15- The president retired. The entity purchased from the retiring president 100,000 shares
for P13.00 per share which was equal to market value on this date. These shares were cancelled.
d. December 15- declared a cash dividend of P0.20 per share to shareholders payable in early part of the
next year.
e. On December 31, the entity is being sued by two separate parties for patent infringement. The
management and legal counsel share the following opinion regarding these suits:
Likelihood of losing
Suit the suit Estimated loss
#1 reasonably possible 600,000
#2 probable 400,000

1. What is the increase in share premium arising from the issuance of 400,000 shares on February 15?
a. 4,000,000
b. 5,000,000
c. 4,600,000
d. 400,000
2. What is the decrease in share premium arising from the retirement of 100,000 shares on September
15?
a. 1,300,000
b. 1,200,000
c. 1,000,000
d. 100,000
3. The entity decided to appropriate retained all loss contingencies that are not properly accruable by a
charge to expense. How much of loss contingencies should be appropriated by a charge to
unappropriated retained earnings?
a. 1,000,000
b. 600,000
c. 400,000
d. 500,000
4. What amount of cash dividend should be charged against unappropriated retained earnings in the
current year?
a. 700,000
b. 680,000
c. 360,000
d. 340,000
5. What amount should be reported in the notes to financial statements as restriction on retained
earnings because of acquisition of treasury shares?
a. 200,000
b. 900,000
c. 1,200,000
d. 1,300,000

26. On January 1,2020, to supplement salaries of executives, Grazilda Company issued share options to
executive to purchase 40,000 ordinary shares of P100 par value at P125 per share.
On such date, the market value of ordinary share is P150 per share. The fair value of each share option is
P30.
The share options are exercisable starting January 1,2022 and expire one year after.
Options covering 35,000 shares are exercised on January 15,2022. Options covering the remaining
shares expired.

Required:
Prepare journal entries from January 1,2020 to December 31,2022 to record the transactions.

27. Pure Company adopted a share option plan that granted options key executives to purchase 30,000
ordinary shares with P10 par value.

The options were granted on January 1,2020 and were exercisable two years after date of grant if the
grantee was still an employee of the entity.

The options expired three years from date of grant. The option price was set at P30 and the market price
at the date of the grant was also P30 a share.

The fair value of the share options cannot be estimated reliably.

The share market prices are P45 on December 31,2020, P50 on December 31,2021 and P55 on
December 31,2022. All of the options were exercised on December 31,2022.

Required:
Prepare journal entries relating to the share option plan using the intrinsic value method.

28. On January 1,2020, Marie Company granted 200 share options to 300 employees, conditional upon
the employees remaining the entity’s employ during the vesting period.
The share options will vest over a three-year period. The fair value of each share option is P50.
By the end of 2020, 20 employees have left and based on a weighted average probability, a further 10
employees will leave during the vesting period.
By the end of 2021, only 8 employees have left and a further 32 employees will leave during 2022.
By the end of 2022, only 25 employees left the entity.

Required:
Compute the compensation expense for 2020, 2021 and 2022 as a result of the share option.

29. On January 1,2020, Easy Company granted 30,000 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 entity’s share price is also P60 at the date of grant. The par value of the
pshare is P50.
At the date of grant, the entity concluded that the fair value of the share options cannot be estimated
reliably.
The share options have a life of 6 years. This means that the options can be exercised within three years
after vesting.
All share options vested at the end of three years and no employees left during the three-year period.
The share prices and the number of share options exercised are set out below.
Share options
exercised
Share price at year end
2020 63
2021 66
2022 75
2023 88 10,000
2024 100 15,000
2025 90 5,000

Required:
1. Determine the compensation expense for each year from 2020 to 2025 using the intrinsic value
method.
2. Prepare journal entries to record the compensation expense each year and the exercise of the share
options.

30. On January 1,2020, Karla Company, a parent entity, granted 200 share options to each of 100
employees of Erika Company, a subsidiary, conditional upon the completion of two years of service with
the subsidiary.

The fair value of share options on grant date is P30 each.

At grant date, the subsidiary estimated that 80% of the employees will complete the two-year service
period.
On December 31,2021, 81 employees completed the required two years of service.

The parent does not require the subsidiary to pay for the shares needed to settle the grant of share
options.
The share options are exercised on January 31,2022.
The exercise price is P60 and the par value is P50 per share.

Required:
1. Prepare journal entries related to the share options on the books of Erika Company the subsidiary.
2. Prepare journal entry related to the share options on the books of Karla Company, the parent.

31. At the beginning of current year, Gray Company granted share option to key employees for the
purchase of 80,000 ordinary shares at P25 per share. The options are intended to compensate
employees for the next two years.
The options are exercisable within a four-year period after vesting by the grantees still in the employ of
the entity.
No options were terminated during the current year, but the entity does have an experience of 4%
forfeitures over the life of the share options.
The market price of the share was P31 at the date of the grant. The entity used the Binomial pricing
model and estimated the fair value of each share option at P10.

What amount should be reported as compensation expense for the current year?
a. 307,200
b. 320,000
c. 384,000
d. 400,000

31. On January 1,2018, Kit Company granted share options to the employees. The total expense to the
vesting date on December 31,2021 had been calculated at P8,000,000.
The entity decided to settle the award early on December 31,2020.
The expense charged since the date of grant was P2,000,000 for 2018 and P2,100,000 for 2019. The
expense that would have been charged for 2020 is P2,200,000.

What amount should be recognized as compensation expense for 2020?

a. 2,200,000
b. 8,000,000
c. 3,900,000
d. 2,000,000

32. On January 1,2020, Green Company had issued executive share options permitting executives to buy
40,000 shares for P25 per share.
The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting)
Vesting date Amount vesting Fair value per option
December 31,2020 20% 10
December 31,2021 30% 15
December 31,2011 50% 20
Assuming the entity used the straight-line method, what amount of compensation expense should be
recorded in 2020?
a. 660,000
b. 180,000
c. 220,000
d. 400,000

33. On January 1,2020, Jeanne Company granted the president compensatory share options to buy
5,000 shares of P100 par value.
The options call for a price of P120 per share and are exercisable for four years following the grant date.
The president exercised the options on December 31,2020.
The market price of the share was P150 on January 1,2020 and P180 on December 31,2020. The fair
value of a similar share option with the same term was P60 on the grant date.

1. What is the compensation expense for 2020?

a. 300,000
b. 100,000
c. 150,000
d. 75,000
2. By what net amount should be shareholders’ equity increase as a result of the grant and exercise of
the options?
a. 600,000
b. 900,000
c. 500,000
d. 750,000

34. On January 1,2020, Kamagong Company granted 100 share options each to 500 employees,
conditional upon the employees remaining in the entity’s employ during the vesting period. The share
options vest at the end of a three-year period.
On grant date, each share option has a fair value of P30. The par value per share is P100 and the option
price is P120.
On December 31,2022, only 20 employees actually left and all of the share options are exercised on such
date.
1. What is the compensation expense for 2020?
a. 1,500,000
b. 750,000
c. 500,000
d. 0
2. What is the compensation expense for 2021?
a. 1,320,000
b. 500,000
c. 380,000
d. 0
3. What is the compensation expense for 2022?
a. 500,000
b. 880,000
c. 380,000
d. 470,000
4. What is the share premium upon exercise of the share options on December 31,2022?
a. 2,250,000
b. 2,350,000
c. 900,000
d. 0

35. On January 1, 2020, Nova Company granted share options to each of the 300 employees working in
the sales department. The option price is P80 and the par value is P50 per share.
The share options vest at the end of a three-year period provided that the employees remain in the
entity’s employ and provided the volume of sales will increase by 10% per year.
The fair value of each share option on grant date is P30. If the sales increase by 10%, each employee will
receive 200 share options.
If the sales increase by 15%, each employee will receive 300 share options.
On December 31,2020, the sales increased by 10% and no employees have left the entity.
On December 31,2021, sales increased by 15% and no employees have left.
On December 31,2022, the sales increased by 15% and 50 employees left the entity.

1. What is the compensation expense for 2022?

a. 1,200,000
b. 2,250,000
c. 900,000
d. 450,000
2. What is the share premium upon exercise of the share options on December 31,2022?
a. 4,500,000
b. 2,250,000
c. 2,700,000
d. 4,950,000

36. On January 1,2020, 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 P60 and the par value per share is P50.
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 share options can be exercised within one
year after vesting.
The share prices are P62 on December 31,2020, P66 on December 31,2021, P75 on December 31,2022
and P85 on December 31,2023. All share options were exercised on December 31,2023.

1. What is the compensation expense for 2022?

a. 120,000
b. 240,000
c. 200,000
d. 660,000
2. What is the compensation expense for 2023?
a. 900,000
b. 600,000
c. 660,000
d. 450,000
3. What is the share premium upon exercise of the share options on December 31,2023?
a. 2,100,000
b. 1,500,000
c. 600,000
d. 900,000

37. On January 1,2020, Generous Company offered the top management share appreciation rights with
the following terms:
Predetermined price P50 per share
Number of shares 20,000 shares
Service period 3 years
Expiration date December 31,2022

The share appreciation is to be paid upon exercise.

The share appreciation rights were exercised on December 31,2022.
The share price are as follows:
January 1,2020 50
December 31,2020 56
December 31,2021 68
December 31,2022 71

Required:
Prepare journal entries in connection with the share appreciation rights.

38. Norway Company granted 200 share appreciation rights to each of the 500 employees on January
1,2020.
The rights are due to vest on December 31,2023 with payment being made on December 31,2023 and
expire on December 31,2024. Only 80% of the awards vested.
Share price
January 1,2020 (Predetermined price) 150
December 31,2020,2021, and 2022 180
December 31,2023 210
December 31,2024 190

The share appreciation rights were exercised on December 31,2024.

Required:
Prepare journal entries from 2020 to 2024 in connection with the share appreciation rights.
39. On January 1,2020, Mist Company granted 100,000 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 P140, P160, P130 and P150
respectively.
On December 31,2021, the entity modified the agreement and cancelled the 100,000 share appreciation
rights.
Instead, the entity granted 100,000 share options provided that the employees remain with the entity
for the next two years.
On December 31,2021, the fair value of the share option is P80. The options are exercisable at the end
of the remaining two-year period. The option price is P130 and the par value is P100. All share options
were exercised on December 31,2023.

Required:
Prepare all journal entries for 2020,2021,2022 and 2023

40. On January 1,2020, Cascade Company granted 100 share appreciation rights to each of the 300
employees on condition that the employees remain in the employ of the entity for the next three years.
No employees left the entity during the three-year vesting period.
The employees exercised their share appreciation rights as follows:
December 31,2022 50 employees
December 31,2023 150 employees
December 31,2024 100 employees

The fair value and intrinsic value of the share appreciation right are as follows:
Fair value Intrinsic value
December 31,2020 10
December 31,2021 12
December 31,2022 15 10
December 31,2023 18 15
December 31,2024 20

The intrinsic value of the share appreciation right on the date of exercise is the amount paid out to the
employees.
Required:
1. Determine the compensation expense each year from 2020 to 2024 as a result of the share
appreciation rights distinguishing between:
a. Compensation related to rights not yet exercised.
b. Compensation related to rights already exercised.
2. Prepare journal entries to recognize the compensation expense each year including the excess of the
share appreciation rights.
41. On January 1,2020, Ultimate Company granted to an employee the right to choose either shares or
cash payment.

The choices are:

 Share alternative- equal to 25,000 shares with par of P30
 Cash alternative- cash payment equal to the market value of 20,000 phantom shares.
The grant is conditional upon the completion of three years of service. On grant date, on January 1,2020,
the shares price is P51.

The share prices for the three-year vesting period are P54 on December 31,2020, P66 on December
31,2021 an P65 on December 31,2022.
After taking into account the effect of vesting restrictions, the entity has estimated that the fair value of
the share alternative is P48.
Required:
1. Compute the fair value of the equity component on January 1,2020 as a result of the cash and share
alternatives.
2. Compute the compensation expense for 2020, 2021 and 2022.
3. Prepare journal entry to recognize the compensation expense for 2020, 2021 and 2022.
4. Prepare journal entry on December 31,2022 assuming the employee has chosen the cash alternative.
5. Prepare journal entry on December 31,2022 assuming the employee has chosen the share alternative.

42. Wolf Company granted 30,000 share appreciation rights enabling the key employees to receive cash
equal to the difference between P20 and the market price of the share on the date each right is
exercised.
The service period is 2020 through 2022, and the rights are exercisable in 2023 and 2024.
The market price of the share was P25 and P28 on December 31,2020 and 2021, respectively.

What amount should be reported as the liability under the share appreciation rights in the December
31,2021 statement of financial position?
a. 240,000
b. 130,000
c. 160,000
d. 0

43. On January 1,2020, Alpha Company offered share appreciation rights with the following terms:
Predetermined price P100 per share
Number of shares 50,000 shares
Service period 3 years
Expiration date January 1,2023
The quoted prices per share are 100, 124, 151 and 151 on January 1,2020, December 31,2020,
December 31,2021 and December 31,2022 respectively.

What amount should be reported as compensation expense for 2022 as a result of the share
appreciation rights?
a. 2,550,000
b. 1,300,000
c. 850,000
d. 0
44. On January 1,2020, Planet Company purchased an equipment with a cash price of P2,000,000. The
supplier can choose how the purchase is to be settled.

The choices are 20,000 shares with par value of P50 in one 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 31,2022, 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?
a. 500,000
b. 400,000
c. 800,000
d. 0
2. What amount of interest expense should be recognized on December 31,2020 if the supplier has
chosen the cash alternative?
a. 600,000
b. 400,000
c. 300,000
d. 0
3. What amount should be recognized as share premium on December 31,2020 if the supplier has
chosen the share alternative?
a. 2,000,0000
b. 1,000,000
c. 200,000
d. 800,000

45. On January 1,2020, Kristen Company established a share appreciation rights plan for the executive.

The plan entitled them to receive cash at any time during the next four years for the difference between
the market price of the ordinary share and a pre-established price of P20 on 60,000 share appreciation
rights or SARs.

On December 31,2020, 20,000 SARs are exercised by executives.

Market price
January 1,2020 25 per share
December 31,2020 28 per share
December 31,2021 35 per share
December 31,2022 30 per share
1. What amount of compensation expense should be recognized for 2020?
a. 480,000
b. 120,000
c. 300,000
d. 180,000
2. What amount of compensation expense should be recognized for 2021?
a. 900,000
b. 420,000
c. 105,000
d. 225,000
3. What amount should be recognized as accrued liability for share appreciation rights on December
31,2022?
a. 600,000
b. 300,000
c. 400,000
d. 200,000