PROBLEM 1

The following are the selected accounts of Anxiety Company in its shareholders’ equity section
as of December 31, 2022:

Preference shares, P100 par, 10 percent cumulative,

100,000 shares issued and outstanding P12,000,000
Ordinary shares, P20 par, 1,000,000 shares authorized,
700,000 shares issued and outstanding 18,000,000
Share premium 8,000,000
Accumulated profits 25,000,000

There are no dividends in arrears on the preference shares. During 2023, the following
transactions occurred:

a. The board of directors declared a cash dividend totaling to P2,800,000 to be paid to

preference and ordinary shareholders. Later, a share dividend of 140,000 ordinary shares
were declared on ordinary shares. The market value of ordinary shares is P68 per share on
the date the share dividends were declared.

b. Sometime after the above dividends were declared and settled, the board of directors
declared as property dividends one shares of its investment in Joy Corp. stocks being held
by the company as trading securities for every two ordinary share outstanding. Joy Corp.
stocks were originally purchased by the company at P12 per share and have a carrying
value based on their fair value as per the last remeasurement (balance sheet) date, at P20
per share. Joy Corp. shares were selling at P24 when the property dividends were declared
and were selling at P25 when the property dividends were settled. The company had a total
of 500,000 shares of Joy Corp. shares.

c. At the end of 2023, the board declares a four-for-one share split. With the split, the number
of ordinary shares authorized to be issued increased to 4,000,000. At the date of the share
split, the market value of ordinary share is P75 per share.

d. Net earnings during 2023 total P5,000,000.

1. What is the adjusted balance of the accumulated profits at the end of year?
2. What is the adjusted balance of the company’s shareholders’ equity at the end of the
year?

PROBLEM 2

Envy Corp. grants each of its 100 employees in the sales department share options in January
2021. The share options will vest at the end of 2023, provided that the employees remain in the
entity’s employ and provided that the volume of sales increases by at least an average of 5%
per year. If the sales volume increase by an average of 5% to 10% per year, each employee will
receive 100 options each. If sales volume increase by 11% to 15%, each employee will receive
250 options each. If sales volume increases by more than 15%, each employee will receive 300
options each. Each option can be exercised to acquire ordinary shares (P100 par) at P120 per
share at any time up to December 31, 2024.

On the grant date, the company estimates that the share options have a fair value of P30 per
option. The company also estimates that the volume of sales for the product will increase by an
average of 11% to 15% per year. The entity also estimates, based on weighted probability that
20% of the employees will leave before the end of 2023.

By the end of 2021, seven employees have left the company and the entity still estimates that a
total of 18 employees will leave by the end of 2023. Product sales have increased by 12% and
the entity expects that this rate will continue over the next 2 years.

By the end of 2022, further six employees left the company. The entity now expects due to low
turnover that 12% of employees will leave by the end of 2023. Product sales increased by 15%
and expects the same increase in 2023.
By the end of 2023, additional two employees left. The entity sales have increased by 16% in
2023.

3. What is the compensation expense in 2022?

4. What is the compensation expense in 2023?

PROBLEM 3

Ennui, Inc. had the following equity accounts as of December 31 2023:

Ordinary shares, P10 par value, 180,000 shares issued 1,800,000

Ordinary shares subscribed, 20,000 shares 200,000
10% preference shares, P5 par value, 100,00 shares issued 500,000
Treasury shares (50,000 ordinary shares) 600,000
Retained earnings 2,500,000

Dividends were last declared and paid on preference shares in 2020.

5. How much in dividends should preference and ordinary shareholders, respectively, will
receive assuming that the company declared P520,000 cash dividends if the preference
shares are cumulative and participating?

On Jan. 1, 2012, the company

completed major repairs on the
company’s machinery
and equipment totaling
P220,000 which was expensed
outright. The said equipment is
5 years old as of January 1,
2012. As of December 31,
2014, the equipment had an
original cost of P500,000 and a
carrying value of P250,000.
PROBLEM 4
ee Co.’s net income for 2012,
2013 and 2014 were P100,000,
P145,000 and
P185,00; receptively. The
following items were not
handled properly.
a. Rent of P6,500 for 2015
was received from a lessee on
Dec. 23, 2014, and recorded
as outright income in 2014.
b. Salaries payable at the
end of the following years were
omitted:
c.
December 31, 2011
2,500
December 31, 2012
5,500
December 31, 2013
7,500
December 31, 2014
4,700
d. The following unused
office supplies were omitted in
the accounting records:
December 31, 2011
3,500
December 31, 2012
6,500
December 31, 2013
3,700
December 31, 2014
7,100
e. On Jan. 1, 2012, the
company completed major
repairs on the company’s
machinery
and equipment totaling
P220,000 which was expensed
outright. The said equipment is
5 years old as of January 1,
2012. As of December 31,
2014, the equipment had an
original cost of P500,000 and a
carrying value of P250,000.
ee Co.’s net income for 2012,
2013 and 2014 were P100,000,
P145,000 and
P185,00; receptively. The
following items were not
handled properly.
a. Rent of P6,500 for 2015
was received from a lessee on
Dec. 23, 2014, and recorded
as outright income in 2014.
b. Salaries payable at the
end of the following years were
omitted:
c.
December 31, 2011
2,500
December 31, 2012
5,500
December 31, 2013
7,500
December 31, 2014
4,700
d. The following unused
office supplies were omitted in
the accounting records:
December 31, 2011
3,500
December 31, 2012
6,500
December 31, 2013
3,700
December 31, 2014
7,100
e. On Jan. 1, 2012, the
company completed major
repairs on the company’s
machinery
and equipment totaling
P220,000 which was expensed
outright. The said equipment is
5 years old as of January 1,
2012. As of December 31,
2014, the equipment had an
original cost of P500,000 and a
carrying value of P250,000.
On Jan. 1, 2012, the company
completed major repairs on the
company’s machinery
and equipment totaling
P220,000 which was expensed
outright. The said equipment is
5 years old as of January 1,
2012. As of December 31,
2014, the equipment had an
original cost of P500,000 and a
carrying value of P250,000.
On January 1, 2023, Embarrassment Company completed major repairs on the company’s
machinery and equipment totaling P230,000 which was expensed outright. The said equipment
is 6 years old as of January 1, 2023. As of December 31, 2025, the equipment had an original
cost of P600,000 and a carrying value of P300,000.

6. How much is the correct depreciation expense in 2025?