INTERMEDIATE ACCOUNTING 3 – SHARE-BASED PAYMENT

INTERMEDIATE ACCOUNTING 3 – SHARE-BASED PAYMENT

1. In connection with a share option plan for the benefit of key employees, Josh Company intends to distribute treasury shares
when the option are exercise. These shares were bought in 2021 at 42 per share. On January 1, 2022, Josh granted share
options of 100,000 shares at an option price of 38 per share as additional compensation for services to be rendered over the
next three years. The options are exercisable during a two year period beginning January 1, 2025, by grantee still employed
by Josh. Market price of Josh’s share was 47 at the grant date. The fair value of the option is 12 on grant date. No share
options were terminated during 2022. In Josh’s 2022 income statement, what amount should be reported as compensation
expense pertaining to the options?
a. 600,000
b. 400,000
c. 300,000
d. 450,000
Solution:

2. On January 1, 2020, Jerome 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 60 and the par value is 50. At the date
of grant the company concluded that the fair value of the share options cannot be measured reliably. The share options can
be exercise within one year after the vesting period.

The share prices are 62 on December 31, 2020, 66 on December 31, 2021, 75 on December 31, 2022 and 85 on December
31, 2023. All share options were exercise on December 31, 2023.

What is the compensation expense for the year 2020?

a. 200,000
b. 600,000
c. 660,000
d. 40,000

What is the compensation expense for the year 2021?

a. 900,000
b. 600,000
c. 660,000
d. 0

What is the compensation expense for the year 2022?

a. 900,000
b. 600,000
c. 660,000
d. 0
 INTERMEDIATE ACCOUNTING 3 – SHARE-BASED PAYMENT

What is the compensation expense for the year 2023?

a. 900,000
b. 600,000
c. 660,000
d. 0
Solution:

3. On January 1, 2020, Jerome Company granted 100 share options each, to 500 employees, conditional upon the employee’s
remaining in the company during the vesting period. The share options vest at the end of the three-year period. On grant
date, each share option has a fair value of 30. The par value is 100 and the option price is 120.

On December 31, 2021, 30 employees have left and it is expected that on the basis of weighted average probability, a
further 30 employees will leave before the end of the three year period. On December 31, 2022, only 20 employees actually
left and all the share options are exercise on that date.

How much is the compensation expense that should be recognized for the year 2020?
a. 500,000
b. 880,000
c. 380,000
d. 470,000

How much is the compensation expense that should be recognized for the year 2021?
a. 500,000
b. 880,000
c. 380,000
d. 470,000
 INTERMEDIATE ACCOUNTING 3 – SHARE-BASED PAYMENT

How much is the compensation expense that should be recognized for the year 2022?
a. 500,000
b. 880,000
c. 380,000
d. 470,000
Solution:

4. On January 1, 2022, Kimberly Company granted Angel, its president, 20,000 stock appreciation rights for past services.
These rights are exercisable immediately and expire on January 1, 2024. On exercise, Angel is entitled to receive cash for
the excess of the stock’s market price on the exercise date over the market price on the grant date. Angel did not exercise
any of the rights during 2022. The market price of Kimberly’s stock was P30 on January 1, 2022 and P45 on December 31,
2022. As a result of the stock appreciation rights,

Kimberly should recognize compensation expense for 2022 of

a. 0
b. 100,000
c. 300,000
d. 600,000
Solution:
 INTERMEDIATE ACCOUNTING 3 – SHARE-BASED PAYMENT

5. Angel Company granted 25,000 share appreciation rights which entitled key employees to receive cash equal to the difference
between P15 and the market price of each share on the date of each right is exercised. The service period is for three years,
and the right are exercisable in fourth year. The market price of the share is P20 and P23 at the end of first and second year,
respectively.

What amount should be recognized as liability under the share appreciation rights at the end of second year?
a. 190,000
b. 155,000
c. 133,000
d. 100,000
Solution:

6. Kaila Company granted 202 share appreciation rights to each of the 1,200 employees in January 2022. The entity estimated
that 90% of the awards will vest on December 31, 2022. The fair value of each right on December 31, 2022 is P22. Service
period is 3 years.

What is the accrued liability on December 31, 2022?

a. 4,799,520
b. 4,000,000
c. 1,200,000
d. 1, 599,840
Solution: