INTERMEDIATE ACCOUNTING VOLUME TWO. Valix Peralta Valix 2019 Edition SOLUTION MANUAL 1 CHAPTER 1 Problem tot Accounts payable 1,000,000 Deposits and avances fom customers 250,000 Notes payable 1.000.000 CCroit balances in customer accounts 200,000 Serial bonds payable 1.00000, Acar increst cm bonds payable 150,000 ‘Uncamed reat income loon oval eatret Habits Ziowowe Problem 1-2 Note payable rede 3,000,900 Note payable ~ bank 2,000,000 Note payable offices 500,000, Accourts payable trade 4,000.00 Bank overdrat 300,000 Dividends payable 1,000,000 Withholding tax payable 100.000 Income tax payable 800,000 Estimated waranty lability 00,300 Estimaved damages payable 700,300 ‘Accrued lisbilitiee 00,900, Fstimaied premium liability — 200.000, Total eatrentlabiities, Biooows Probtem 1-3 Employee income taxes withbeld Cash overorat| ‘Accounts receivable with credit balance Fstimaied waranty ability Estimated danages payable ‘Accoums payable ‘Accrued intrest on bonds payable trom October | to December 31,2020, {6,000,000 x 12% 312) Tal carrot lite ‘The bonds wil be pa over 5 years because the semiannual be paidon October 1,2026, th fist bond will be aid on Apel 1, 2022. Accondinaly, thre i no curreally ‘maturing bond in 2021, ‘The stock dividend payable isnot an accounting lability but presented os par of shareholders’ equity as an ‘ation to share capiProblem 4 Accounts payable (500,000 + 100,000) 00,000 ‘Aventod Habiies 50,000 Note payable refinanced 000,900 Note payable due May |. 2021 —s00.000 Tota euten lables 2asoo0e Nearest bine: ‘Bonds payable, due December 31,2021 2oneuie Problem 1-5 Current liability: P3,000,000 The dels stould be repre aa cunt lailily because ii payable inthe upsoming year ad wll not he ‘financed with ng-tcra ligation, Current tiaicy: P 6,000,000 “The requremen to reclassify curelly maturing debe asa curr Uabilty ices be hat is callable By he creo nthe upcoting your ~even if he deb i expected to he led ‘Noncurreat labley: P4,000,600 ‘The cra ality clasifatio icles sti in which he eet hae the rig to demand payrent Bocas rovison of he debe agreement makes i callie unin prea he volt wl Be om sexpectel tbe correct witha 6 moth ad ‘Sere the aii shoal be lassie as nonce ‘Current lability: PS,000,000 “The ne pai wn eae lange hon aay 3,221 a heen Fhe cae ep peri, Tham the ate pyaile dana il be clad a cure iy, Problem 1-6 1, Current iis ‘Accourrs payable 7,000,000 Note payable ~ are 12.000.000 ‘vented expenses ove 23,000,000 Noncurtent abies: Mongage payable 4,000,000 Note payable dae 2022 wooo =— ono o00 Total libilies Towa ‘The note payable tba spa frm he proceeds ofthe isuance of share capital of PS.00,000 on Janay 31, 2021 and the uailset of» francing agreement om February 15,2021 with ancl capt commercial fank on Apa I, 2021 inthe amoun af P3,000000, Nevereles, the note payable should continue to be asides cure Problem 1-7 Accoures payable 6,500,900 Note payable ~ bank 3.000.000 Interest payable 150,000, Mongage tote payable 2.000.000 Bonde payable 4.900.000 ‘Total current ibis ‘TeeseProblem 148 Answer A Accounts payable (4,000,000 = 190,000) 4,100,000 ‘Acomied expenses 1,500,000 ‘Credit balances in customers’ accounts 500,000 Estimate liability for coupons 60.000, “Total eutent habiiies ce Problem 1.9 Answer C ‘Accouns payable 1,300,000 Dividends payable 00.000 Income ax payable 900,000 ‘Note payable 600.000, “Total cuter liabilities iw Problem 110 Answer D. 4y%enote payable due 2021 30,000 8% note payable maturing December 31,2 0-000, Total ewtent mattis 20.000 Problem 111 Answer 5 12% not payable refinanced on January 31,20201 S.ouo.oo0 Problem 1-12 Answer C Accounts payable and accrued intrest, 1,000,000 Debentures payable ~ current poron 00.000, Total curent ibiltice Toma 1 the refinancing eceurs on or before the end of the reporting period, the refitancing isan adjusting ‘ven, meaning the obligation is lasifed ws noncurrentIabiity ‘Accordingly, the 12% note payable shal be classified as noncurrent because the refinancing is made on December 31, 2020. Problem 1-13 Answer A ‘The entice amount of 7750,000 is shows as cures lsbilay because the mote payable i duc to be sete within one yearregardesso the issuance of honds payable Problem 1-14 Answer C Note payable 2,000,000 Refiranced on December 31, 2029 -noneurent potion (80% 1,500,000) 1100-000, ote payable ~ not refinanced, eurest portion a Problem 11S Answer B 220.000 Problem 1-16 Answer © Unarmed revenue January 1 650,000 ‘Ade: Git certificates sod 2230.00 oral 500,000 Less: Gift certificates redevmed 1,980,000 Unredeemed giftcerfiates 100.00 2.050.000 Uncamet revenue ~ December 31 Sng‘Problem I-17 Answer A neared revenue — January 1 750,000 Sales of gift ertificaies ~ 2020 2smes0 Tort 53230,000 Redemption of prior yer sales (280,000) Redemption of current yer sales 20.000) ‘Unearned revenue ~ December 31 BRENT ‘Problem 1-18 First contact yea (40% x 600,000) 240,000 Second contract yea (00% x 600,000) 0.000 ‘oval contacts seid is 2020 ‘sa0.c00 Since the sotracis ae sold evenly, only one-half ofthe 40% is ened in 2020 and one-alf will be earned { 2021. One-half of the 60% wil be eamcd in 2021 and oneal wil be carne in 2022 Question 1 Answer A Question? Answer B “oval contracts sed (1,000 x 600) 600,000 Lei: Contrasts ened in 2020 (240,000 x 12) s2o.e0o Deferred service rovene December 31, 2020, foo ‘Question 3 Answer © 120,000 130,000 “Tou service coral revenve earned in 2021 una Question 4 Answer C Remaining onechalf of second content yea? (160,000 1/2) sooo, Summary Contract revenue in 2020 ‘Contact revenue in 2021 ‘Contract even n 2022 Problem 1-19 Question | Answer A ‘Question? Answer B 2020 sales 40% «$00,000 equals P2000, This ‘or P100,000, 60% x $00,000 equals P300,000, This ‘or P150.000 suit i ermed one-half in 2020 0 00,000 and one-hain 2021 sont i eamed one-half in 2021 oF P150,000 and one-half in 2022 ‘eval contrasts sold fn 2020 500,000 Contract revenue in 2020 ‘aoo.000) neared contract revenie~ December 31, 2020 unoQuestion 3 Answer C Question 4 Anewer D 2021 sales 40% x 600,000 equals P240,000, This amount ieamed one-half ia 2021 or P120,000 aad one-half in 2022, ‘or P120,000, (4% x 60,000 equals P360,000, This amount iseamed one-half in 2022 and one-half in 202 Remsning onehalfof fist contract yar ~ 2020 sles (200000 x 1/2) 100.000 Fist one half of second cont year ~ 2020 ales (300000 x 1/2) 130.00 First one-half of int contrat year ~ 2021 sles 240,000 x 172) dome “Teal contract revenue for 2021 oe ‘Tota contracts sold in 2020 and 2021, 1.100.000 Contract revenue in 2020 C1e@.000) Conte revenue in 2021 Lio ‘Uneames contact evenue~ December 31,2021 ome The encamed contract revenue on December 31, 2021 is P150,000 forthe 2020 sales and 480.000 for 2021 sales Fa total oF 630,000, Problem 1-20 Answer A “Monthy subscriptiens (7,200,000 12) sco. The subscriptions after the September 30 cutoff are: Getober 600,000 Novemter 660,000 December peor “otal uncarned subscription revenue - Devenber 31, 2020 Thome ‘The abo sbscripios wil be Serve in the next publication in 2021 Problem 1-21 Aniwer B moo ‘Problem 1-22 ‘Question 1 Answer C ‘Question 2 Anewer C Subscriptions received in 2020 that will expe ix 2022 125,000 Subrcripions received in 2021 that wil expire in 2022 200,000 Subscriptions received in 2021 that wll expe ie 2023, 12.00 ‘Uneamed subscription revenve ~ December 31,2021 as. Sebscipion revenve fr 2021 (155,000 + 130,000) anProblem 1-23 Answer © ‘Comins’ deposit on January 1, 2020 applicable to 2018 deliveries ess Cantaners returned in 2020 applicable o 2018 deliveries Balance expired and no longer refundable ‘Containers’ deposit January 1, 2020 ‘Add Containers” deposit in 2020 Tota Less Container returned in 2920 315,000 ‘Containers net reurred and expired 2.000 ‘Comainers® deposit December 31, 2020 Problem 1-24 Answer C Advances —Jamuary 1 Advances received Total Advances applied ‘Advances cancsled ‘Advances ~ Deverber31 Problem 1-25 Answer C erow account Hiabilay January | ‘Ad: Escrow payment received 1,580,000, Interest on eserow finds — 0M Tout Less: Real estat taxes paid 1,720,000 Service fee (10% $0,000) 000 Eserow accounts lability ~ December 31 Problem 1:26 Answer B Escrow liability, January 1, 2020 serow depositreceived fom January |v September 30,2020 (250,000 « 9 months) Tota! Less Payment for rel estite tx from January | to Sepember 30,2020 orthree quaiers(2.800,000 x 3/4) serow lablity, September 30,2020, Problem 1.27 1. Bons (5% x 5,250,000) 2 B= ,05(5,250.000 8) = 262,300 - 058 B+ 0sB = 262'500 1.058 = 262.500 261,500 / 1.08 B= 250,00 75,000 $300 iow 298,000 soo ‘sano 300 i 1,180,000 Brenig 302,00 (4G,000) socom a 700,000Proof Income befare bones and before tax Dine Income afte bonus before tax Muliply by Bonu 3 05 (5,250,000 B~T) T = 30(5,250,000- B) B = (05 [5,280,000~ B» 30 (5,250,000 - By) B ~ 05(5,250,000 B_1,575,000 » 300) B= 262500- OSB 78,780 + 01SB B+ 058-0158 = 262,500- 78,750 L03sa = 183380 B= 1837300 L035 > 177336 Proof Income befare bones and before x 5.250.000 Bons Cizs6 Income after bonus before tax Sorasot Tax G0% x5,072468) GSLs Income afer bonusand after tx 350.738 Multiply by —% Bones ize 4 B= 056.280.0001) T = 30(5,250,000-B) B = 05 [5250,000 -.30 250,000 -B)) BB = 85 (5250,000 - 1.575000 308) B= 352,500. 78,780 5.0150 B- o1sh = 184750 9858 = 183.750 B= 183,750/ 985 B= 180.548 Proof Income bofire bones and bere 8x 5,250,000 Tax 6.250.000~ 186,548 x 30%) (TRE Income ate tax and before bons 3730564 Mulupiy by 2 Pon Sas Problem 128 Answer B B= .10,(1650,000-B) 8 165.00 - 108, BY 108 = 165,000 1108 = 165,000 B 165,000/1.10| B= {owProblems 1.29 Answer A. Income aftr bonus and tax (280.0007 10%) Tacome before as (2,800,000 70%) ome before bon sd (460000 -+ 280.) root Iacome before bonus and tax less Bens Icom before wx Less: Tex 60% x 4,000,000) Tacome alr beous and ta Problem 1-30 Answer A. Income after bens before tx (600,600 / 125%) ones (25% x 480,000) Problem 1-31 Answer B Problem 1.32 Problem 1-35 > 8 wore robles 135 Problem 1-36 >oRe nv>esomnes 2,800,000 2.000.000 4.280.000 4,280,000 Fovo.000 Problem 1:14 eergsCHAPTER 2 Problem 2-1 2020 1. Cash 3,400,000 Sales 3,600,000 2 Premiums 390900 Cash 390.00 3. Cash (5000. 10) 5000 Premium expense (5,000 « 40) 200,000 Premiums (3,000 30) 250,900 4. Premium expense (5,000 x20) 100,000 ‘cash 100,000 5. Premium expense (2.000 x 60) 120.000 Estimated premium Habilty 120,000 20 |. Estimated premium lability 120,000 Premium expense 120,000 Reversing entry. cash 4,200,000 Sates 4.200.900 2. Fremiums $80,000 ‘Cash $80,000 3. Cash (9000 x 10), 90,000 Premium expense (9,000 « 40) 360,000 Premiums (9,000 $0) 450,000 44. Premium expense (9,000 x20) 180,000 Cask 180,000 5. Premium expense (3,000 x 60) 180,000 Esti 180,900 Problem 2-2 200 1 Cash 2.500.000 Sales 2,500,000 2. Premiums -towele 175,000 Cash 175,000 5. Cash (1.000 x 20) 20.000 Prominin expense ‘8000 Premiums ~ towels (1,000 x 100) 100,000 4 Promium exponso (1,000 « 5) $000 Cash 5.000 5. Premium expense 51,00 Estimated promi Hibility (600 x 8S) 51,000)201 1. Estimated premiam ibility ‘remiim expense cash Sales 2, Premiums - towels ‘Cash 3, Cash (1,800 20) Premium expense Prormums —rowels (1,800 x 100) 4, Premium expense (1,800 x 5) Cash 5, Promiumexpense ‘Estimated premiam laity (800 85) Statement clasifiention ‘Cament sac: Premiums towels ‘Carret lability: estimated premium ibility Selling expense Premium expense Problem 23 1. Cash (400,000 x9) Sales 2. Premiums Cash 2, Promium expense Cash 4 Cash 8,000 « 5) Promism expense (1,000 x 85) Premiums (8000 x 90) 5, Premium expense (2,000 x85) stated prema ibility eat caps w be redermed (25% x 400,000) Les: Bote caps redoemed (8,000 pens x 10) Bost caps outstanding Promina tbe distributed onthe balance of - 7 D c A ory 2,400,000 200.c00) 250,00 540,000 «G00.c00)25 CHAPTER 4 Problem 41 1. With respect tothe ir lawsuit, the ety would recognize a loss and acrue a Hablty of 5 31% would be viewed a probable. 2. In rcation tothe wecond await, the entity would resognie and aerue a lability forthe midpoint of the range PA,009,000. 3. With espectto the tied lawsuit, the entity would censider tho lime value of mosey and so would recognize alassand acer a ibility forthe midpoint ofthe range P2,000,000, 000,000 4 In elation wo dhe fourth awit, the eaiy Would make no actual as 25% would 9 be viewed as probable Only dsclsure note is appeoprite Problem 4.2 1. Loss from ition 4.500.000 Lithatien ability 4,500,000 Xo entry The labor dispute it less contingency and cannot be acerued wales it isboth probable and reasonably estimable, Coss cannot be adequately predicted. A disslosure noe is appropriate 3. No entry. The laws fed by Accond Company is Toss contingency and eannet be aesrued because it Isonly reasonably possible thst a loss will esul. A disslosare noe is appropiate 4. No cary The cavinonmenal violation isan unassented assesses. ftmwst first be probable dt a tuessment willbe made and cannot be acrned unless iti bth probable and rensonably estimable that the assessment will result nals. Problem 43 1. Only a disclosure & necessary because iti not probable chat the company willbe lable, although the amount can be messured eisly, 2 Retained camings 200,000 Estimated liability for income tax 200,000 3. Account recevable ~ Sunset 120.000 {Losson guacanty 80,000 "Note payable ~ bank 200.000 Problem 4-4 1. Losson lawsuit 300,000 ‘Estimated lability for lawsuit (50% «1 600,000) 00,000 2. Environmental cost, 1,500,000 Eetimated Laity for environmental cost 1,500,000 3. No provision is recognized forthe guaranty because there is oaly a remote likelihood that fare paytvcat willbe made. 4. Contmination cleanup cost 500,000 Estimated liabilty forclean up cost 300.900 5. Losson lawsuit 300,000 Estimated lability for lawsuit 300.0026 Problem 45 ‘Tae shipping company shall recegnize » provision For PS,000,000 because the clim of the international fieight forwarding company is probable No provision ot disclosure would be needed for the 2,000,000 claim of the intemational eight forwarding company because there isa remote posblity for the payment “The shipping company shall also recognize x contiageat asset of P4, 500,000 (90% x PS,000,00), because the amount vituallycerain of collection Problem 4.6 Restnscarng cote 1,720,000 Estimated lability for restructuring costs 1.730000 Unpsid entidement of retrenched 200 employees 1,500,000 ‘Unpaid vtrenchmeat clage of ne executive tasked to complete «closure of Mindanao branch 200,000 Unpaid salary of th: executive related to closure of Mindanao branch (6(% x 50,000) 30.600 ‘Tolalprovison for resucuriag Tews Tae cost of PAGO,6H expected tobe incurred in trnsferring the 50 employses to Manila are not included in the restructuring provision because they relate to ongoing operations. ‘Only 60% of the January salary ofthe executive is included inthe restructuring provision because the remainder relates to the transfer ofthe 50 employees to Manil and general administration, Probiem 47 ‘Leas termination penalty 4,000,000 ‘Cost oF hiring entpavemen frm 6,000,000 Employee termination cost oonocoo Total resructurng provision monocoo Proviem 45 1. Doutsfl accounts 900,000 Allowance fr doutfal accounts (3% x P30,000,000) 900,000 2 Warranty expense 250,000 ‘Estimated warranty ibility (2% x P30,000,000-~ 350,000) 250,000 3. Loss from product recall 1,500,000 Estimated lability ~ product recall 1,500,000 4. Loss from tigation 4.200.000 Litigation liability 4,200,000 5. No euty. The lawsuit agalast a customer i o gain contingency. Contingent gai is not accrued even if the guin « probableand resonably estimable. The gan should be recognized only when reliand. A ielosure note is appropriate Proven 49 1. No disclosure is required because a claim by the city goverment i as yet unasserted and an assessment isnot probable 2. The lawsuit against Faye Company isa ain contingency. Contingent gain isnot accrued even if the ss probable and reesorably estimable. The gain shoal be recognized only wen realized. Baron Will slose information in the notes to the financial statements27 3. The cate withthe provincial goverment isa loss contingency. Baron can use the information occurring afer the end ofthe yearn determining appropriate disclosure. Baroa sbould accrue the F2,000,000 loss bbecaus the ukimate outcome appears sted and the loss proba Litigation toss 2.000000 tigation ability 2,000,000 4. The dispute witha customeris loss contingency. Baron can use the information ovurting aftr the ‘end ofthe yeu dering appropriate disclosure I unlikely hat Baron would chose ace ‘the P1200/000 los because the judgment willbe appealed and that the ousonvs ic uncertain. A. >emoecnonCHAPTER 5 Problem 5-1 Requirement 1 2020 ‘April Cash 7.000.000 x 106%) Bonds payable Premium on bonds payable (Oct. I Interest expense (7,000,000 x 12% x6/12) Cash Dac. 31 Inteest expense (7,000,000 5 12% x 212) Interest payable 31 Premium bonds payable Interest expense (420,000 / 10 x 9/12) 2001 Jan. 1 Accrued interest payable Interest expense April 1 interest expense Cash ‘Oct. 1 Interestexpense Cash Dec. 31 Interest expense ‘Acero inert payable 51 Premium on bonds payable Interest expense (420,000 10) Requirement 2 Noneverent lists: Bonds payable Premium on bonds payable Canrying emount Problem $2 Requirement 1 2020 Jan. Unisued bonds payable ‘Authorized bonds payable Jan 1 Cash (5,000,000 x 95%) Discount on bonds payable Unissued bonds payable une 30 lntcrest expense (5,000,000 x 12% x 6/12) Cash 7420.00 420,000 210,000 31,500 210,000 420,000 420,000 210,000 2,000 000,000 4.750.000 "250,000 300,000 32 7,000,000 40,000 420,000 210,000 31,500 210.000 420,000 420,000 42,000 7,000,000 §,000,000 5.000.000 300,0002020 Dec. 31 Interest expense ‘Cash 31 Interest expense (250,000 /10) ‘Discount on bonds payable 2021 Sune 30 Interest expense Cash Sept. | Cash Unisned bonds payable Premium on bonds payable Interest expense (2,000,000 x 12% 2/12) Dec. 31 Interest expense {Cash (7,000,000 x 1294 x 612 31 Interest expense Discout ot bonds payable 31. Premium on bonds payable Interest expense 120 months ~20 = 100 months remaining £60,000 7100 = 600 monthiy @ox4 = 2,400 Requirement 2 ‘Noncwrett Fails: ‘Authorized bond payable Less: Unissued bonds payable Teaued bonds payable Premium on Bonds payable Teal Discount an bonds payable (Carrying amount Problem 5-3 ‘Requirement 1 2020 Apel | Cash Discount on bords payable Bond ise cost Bons payable ‘Oct. 1 Interest expense ‘Cash (3,000,000 x 12% x 6/12) Dec. 31 Interest expense Accrued interest payable (5,000,000 12% x 3/12) 31 Interest expense Diseourt on bends payable (10,000/ 5 x 9112) Bond issue cos (50,000 /5 x 9/12) 300,000 251000 300,900 2,100,000 4,850,000 100,000, ‘50000, 300,000 22500, 33 300,000 25,00 300,000 420,900 28,900 2,400 5,000,000 300,900 130,000 15.000 7.5002021 Jan. 1 Acerved interest payable 180900 Taterst expense Apst 1 terest expense 300,000 Cash July 1 terest expense 13900 ‘Discount on bonds payable (20,000 » 6/12) ond sae cost (10,000 x 6/12) Retirement price (2,000,000 x 99%) Add: Acerucd intrest fomn Apel Ito July 1, 2024 (2,000,000 x 1286 312) ‘Total payment Bonds payable retired Less: Applicable discount (215 x75,000) 30.000 ‘Applicable isue cost (28 x 37,500) 15.000 CCanryingamourt of bonds retired ‘Less: Retemert price Las on early eetiomest July 1 Bonds payable 2,000,000 Teter expe 60000, Toc on eat eeicement of bonds 25000 ‘cash Discount on bonds payable one issue cost Oct 1 Inerest expense 80,000 Cash (3,000,000 x 12% x 612) Dec. 31 Increst expense 90000 ‘Avenacd interest payable (3,000,000 x 12% x 312) Dec. 31 Imerest expense 9.000 ‘Discount on bonds payable (12,000 » 6/12) Bond issue cost (6,000 6/12) Revised annual amortization: Diseour (3/5 20,000) Issuecost(3'3 3 10000) Requirement 2 Nopcument abiiten Bonds payable Discount on bonds payable Bond issue cost Canyiag amount 34 150.000 10000 5000 1.980.000 2,000,000 Ase 73551000 sun) 2.040.000 30,000 13000 180.000 90.000 31000, 12,000 6.000 3,000,000 © 39000)Problem 5-4 Requirement 1 2020 dan, 1 Cash Boni payable Premium on bonds payable st expense (Pas (000,000 3 12%) Des. 3t 21 Premium on bonds payable Interest expense (200,000 / 8) 31 Bonds payable Premim on bunds payable (Cae Gaia on arty retirement of bonds Face of bonds payable retired ‘Nd: Applicable premiam (1/4 x 160,000) Carrying amount [Less Retirement price (1,000,000 x 98%) Gain on retirement 201 Dex. 31 Interest expense Cas (3,000,000 x 12%) 31. Premium on bonds payable Interest expense (40,000 x 3/4) Requirement 2 Noncurent ibis Hn payable Premium on bonds payable Csrying amount Problem 5-5 1. Total bones payable issued ‘Les: Face vale bonds payable reed ‘Bonde payable ~ December 31,2020 Discount em bond payable ‘Less: Amertization from 2013 1 2019 (200,000 /10 x7) alance —Janvary 1, 2020 Less: Diseount applicable to bonds retired (316 x 0.000) ‘Adjusted balance ‘Less: Amentization for 2020 45,000 / 3) Discount on bonds payable -Decernber 31, 2020 Iaserest (3,000,000 x 12%) ‘Amortization of discount for 2020 Inerei expense for 2020 360,000 30000 35 4.000000 200,000 4800003. Adjusting enies on Desember 31,2020: . Rettined samings 210000 Discount on bonds payable '. Bonds payable 300.000 Discount on bonds payable Gaia on erly retirement of bonds aonds payable sted Les: Applicable disooune Carrying amount Less Retiement price Gain on early retirement «, Inerest expense 15000 ‘Discount om bonds payable Amortization fr 2020, A Inorest expense 140.000 “Accrued increst payable (3,000,000 « 12% x 1/2) Problem $-6 1. Cash 3.900000 Discount on bonds payable 100.000 ‘Bonds payable New 2. Bonds payable - od 3.000.000, Premium on Bonds payable ‘50,000, Accrued interest payable 180.000 Lows on erly retirement oF bonds 4000 Cash Bonds payable - old Premier om Bonds payable (Carrying amount Less: Retirement price (3,00,000 x 102) Lows on early retkement Reairement price ‘Add: Accrued interest payable Taal payment Problem S-7 1. Amortization table Bond Dhicount Interest ‘Year outstanding Fraction amortization paid 2021 8,000,000 840 64000 960,000 3022 1,000,000 40 64000 960.000 2025 7.000.000 7140 56900 $40,000 3024 6.000.000 640 48.000 720000 2025 5,000,000 S40 40,000 500.000 2026 4,000,000 440 32,000 480,000 wer 2gag.09 240 2 dow — —2anoo0 ‘Wowo.on Zomm Zionow 36 210,000 45000 255,000 3.000.000 2955:000 2ro000 15000 80.000 4.000000 Interest expeme 1.024000 924,000 596000 768000 640,000 512,000 e000'b Journal entries 2020 Dee. 31 Cash Discount on bonds payable Bonds payable 2011 Dec. 31 Interest expense Cash 31 terest expense Discount on buds payable 2022 Dec. 31 Interest expense Cash 31 terest expense Discoun on bonds payable 31 Bonds payable ‘Cash 203 Dec. 31 Ieterest expense Cash [3 eres expense ‘Discount on bonds payable 31 Bonds payable Cash Problem $8 Amortization table Bond Year outstanding 2021 “7,000,000 2022 6.000.000 2023, 5,000,000 2024 4.000.000 22s 3.000.000 206 200,000 227 090.000 ATCT 2020 Dee.31 Cash ‘Bonds payable ‘Premium on Bees payable Fraction 7 a8 528 428 32s 22k 128 7,680,000 320,000 64.000 60,00 64.000 1,000,000 86.000 100,000 Discount Interest amortization aid 165.000 240,000 o.oo 720,000 75,000 600,000, 0.000 480,000 45.000 360.000 30000 240000, som © _120.000 Dom Lica 7.420.000 37 8,000,000 64,000 960,000 64.000 1,000,000 840,000 56,000 1.000.000 Interest expense 735,000 630,000 525,000, 20,000 315.000 210.000 7,000,000 “20.00038 201 Dev. 31 Interest expense £840,000, Cash 540,000 31 Premium on bonds payable 105,000 Interest expense 105,000 31 Bonds payable 1,000,000 Cash 1,000,000 2002 Dee. 31 Interest expense 729,000 Cash 20000 51 Premium on bonds payable 90,000 Theres expense 90.000 31 Borde payable 1.000.000 Cath 1,000,000 31 Boos payable 1,000,000 Premium an Bord payable 30.000 Loss on early retirement of bonds 20,000 ‘Cash (1,000,000 105) 1,050,000 420,000 / 28,000,000 = .015 per year Tovo,ovo. 018 x2 = 3g0a0 Problem $-9 Answer D 9% debentures 3500.00, 11% Collar tnt bors oowo1 “Tat ierms Bonde ‘eso Problem $-10 Question 1 Answer A. ‘Question 2 Answer A. Serial bonds —-Debenture bond 9 Regisrered bonds 2.780.000 2.750000 11% Comvertble bonds 1L2s0,000 10% Commodity backed bonds 200.000 Tatat coe Tioms Problem $-11 Answer A eae pic (5,000,000 x 110) 550,000, ‘Accruod intrest from July | to October 1, 2020 (5,000,600. 12% 3/12) seo Total 550,000 Less: Bond issue cost 000, Net cash teedived eoProblem $-12 Answer C 1 price (4,000,000 » 09%) ‘Accrued intrest fram January 110 Apeil 1, 2021 (4.000.000 x 8% x 312) Total Less: Bond iisue cost Net cash received Problem $-13 Anwer B Bonds payable Premium on bonds payable (4% x 5.000.000) Bond issue cost ond Habiiy Problem S-14 Answer B All cos incurs Problem $-15 Answer B (Cash received ‘Accrued interest fram June 30t0 Novernber 1, 2020 (500,000 x 6% x 4212) Issue price of bonds payable Fave valve Premium on bonds payable Problem 5-16 Answer B Accrued intrest payable from October 1 to December 31,2020, (4,000,000 8 8% x3/12) ‘The nominal interest of 8% is used in determining the accreed interest payable ‘Problem 5-17 Answer D Accrued intrest payable from July 1 to September 30,2020 3,000,000 x 12% x 3/12) Problem $18 Aniwer B ‘Bonds payable AK: Premian on boos payable Tool Less: Discount on bonds payable Carrying amon Less: Retirement price (3.000.000. 88%) Gain on trent Problem 5-19 Answer D Bonds payable Less Discount on bonds payable Curyingamoun. ‘Carrying amount retired (4.000,000 / 8,000,000 « 7.570.000) Less: Retirement price (4,000,000-+ 100,000) Loss on early extinguistnent| 5,000,000 200,000 (asso) Sars. 20.000 5,150,000 030,000 5,000,000 $30.00, BESTT 3.785.000 3.100.000 soon)Problem $20 Question 1 Answer A Interest expense (6% x 4,000,000) Question? Answer D Bonds payable 1/1/2020 Fair vale ~ 12/31/2020 (4,000000 x 98%) Increase in fir value of bords payable ~ loss Loss fom change in fair value Bonds payable Question 3 Answer B Question 4 2020 Jan. 1 Cash Bonds payable Doc. 31 Interest expense Cash 31 Los from change in fe value Bonds payable Problem §-21 Question 1 Answer A "Nominal interes (12% x PS,000,000) (Question 2 Answer A ‘Canying amount ~ 1/1/2020 Carrying amount — 12/312 Decrease in kability in Question 3 Answer B Question + 2020 Jin. 1 Cash Bonds payable Jane 30 Interest expense Cah Doc. 31 Interest expense Cah 31 Bonds payable Gain from changin fir alus 122400 3.577.600 240,000 122.400 385000, 300,000 260900 3.677.600 122,400 5,385,000 uzso00 5.385.000 300.000 300000 260,00041 Problem $-22 Question 1 Answer A Question 2 Answer B Question 3 Answer © Carrying amount — 1/1/2020 Carving amount ~ 1231/2020, Increase in iablity~ loss Los on creit risk {ss from change in fr value Te Question 4 2020 Jan. 1 Cash 7,600,000 Bonds 7,600,000 1 Transsetion cast 150,000 Cah 150,000 Deo, 31 Interest expense $00,000 Cah 800,000 $31 Lows om em 150,000 [Loss fom change in far value 650,000 Bands payable 800,000 Problem 5-23 Question 1 Answer B (Carving amount ~Janwary 1.2020 .om200 Question 2 Answer A Interest expense for 2020 (12% x 1,000,000) oom Under the fale value option, the interest expense is computed using the nominal rate, Question 3 Answer © Fairvalue January 1,2020 107.200 Fair value Deseret 31, 2020 Loss aio, Gain from change mn fue value to PERS 9, paragraph 4.22, slows the measurement ofa fnancillsbilty t fair value Under the fai value option, the boad payable is measured at fir valve at every yearend and any change in far value is recognized generally in profit or loss. The accourting rules for discount or premium amortization no longer apply Question 4 Answer A Carving amoust December31,2020 oso, Under the fir value eptcn, the carrying arsouat ofthe bonds payable is always the far value at every yearend.‘Question $ 2020 Jan 1 Cash 107,200 Bonds payable July 1 Interest expense 6,000 Cash Dec. 31 Interest expense 6,00 Iiterst payable Bonds payable 2,600 Gain from change in fi value (1077200 ~ 1,064,600) Problem $24 Problem 5-25 Le LA 2A 2c BA 38 4A 4D SA 5A 6D GA ae 7D ac wa 5B 9D loa we a 077.200 6.000 6.000 12,600Problem 6-1 Requirement | Jan. 1 Cash Bonds payable Premium on bonds payable CHAPTER 6 Dee.31 Interest expense (6,000,000 x 12%) ‘cash 31 Premium on bonds payable Tieret expense Interest pid Tneres expense (10% x 6,737,000) Premium amortization Requirement 2 ‘Noncurrent iii Bonds payzble Premium on Buns payable (737,000 ~ 46,300) Canying ancont Problem 62 Regulrement 1 Due Vizo 3072020 12A172@0 swat 1231/2021 Requirement 2 2020 Jan. 1 Cash Discount on bonds payable Bonds pasable Jane 30 Interest expense ‘can Discount on bonds payable Dec. 31 Interest expense ‘Cah Discount on bonds payable Interest pale 130,000 150.000 150.006 150.000 Interest expense 2740 oso 196228 9882 6.737,000 720,000 46,300 Discount amortization 22,740 HAsO. 28 $8082 418,500 181,300 192,740 194,450 43 6,000,000 737.000 720,000 46300 720,000 spi 6,000,000 By Sone carrying 4.818.500 4.801.240 4,905,690 4.951.918 5,000,000 5,000,000 150,000 270 150,000 4490201 Se 30 Interest expense Cash Discount on bonds payable Dec. 31 Interest expense Cash Discoun. on bonds payable 31. Bonds payable ‘Cash Problem 6-3 4. Amortization table Date vaaoz0 ‘63012020 Rave 6302021, w2ay2021 ‘63012022 12812022 Journal entries 2020 Jan, 1 Cash [Discount on bon payable ‘Bonds payable June 30. Interest expense meres paid 240,000 24,000 240,000 240,000 240,000 240,000 ‘Cast Discoust on bends payable 2022 Dec. 31. Interest expense Cash Discount on bonds payable 2023 Jan | Bonds payable Cash Problem 6-4 |. Amortization table Imcerest Date paid 41020 raov72020 120,000 43021 120,000, 10012021, 120.000 4in/2022 120,000 roo172022 120,000 7023 120,000 Inverest ‘expense 27.808 277285 280980 2s5.078 289,536 2015381 Interest ‘expense 103,076 104,330 103/546 102734 101.860 ros.082 5,000,000 Discount amortization 23.868 y7285 40980 45078 49586 54551 2,738,682 ‘Lsis 273,968 possi 3.000.000 Discount amortization tag24 15670 Test 17215 ish 153085 150,000 46228 150,000 8.082 5,000,000 Carrying 2.78% 082 2.772.550 2309 405 2.850.785 205.463 2.045.449 3,000,000 3.000.000 240,900 33.N68 240.000 $4551 3,000,000 Carrying 2,101,520 Zewe.s96 2.070926 054472 2.037.196 Zo1s'9s6,2. Journal enties 2020 Ape 1 Cash Bonds payable Premium on Bonds payable (Oct. 1 tnterestenponse Premium en bonds payable Cash Dec. 31 Interest expense ‘Accrued interest payable 31 Premium on bonds peyable Interest expense (15,670 x 1/2) 2021 Jan. 1 Accruat interest payable Interest expense Ape I Interest expenie Cash 1 Premium on bonds payable Interest expense Oct. 1 inerestexpense Premium en bonds payable Cosh Dec. 31 Interest expense ‘Acar interest payable 31 Premium on bonds payable Iscrest expense (17.276 x 3/6) Problem 6-5 Requirement 1 Interest experi for 2001 3,805,400 x 108) Interest rai for 2021 Discount amortization Bonds payable Issue price ~ proceeds from issuance Discount on bonds payable ~ 12/31/2020 ‘Amnrtzation for 2421 Discount on bonds payable 12/31/2021 Bonds payable Paymenton 12/31/2021, Bonde payable — 127312021 Discount on bonds payable Carrying amount - 12/31/2021 2,101,520 105.076 14924 60.000 7888 60,000 120,000 7835 103,546 16384 60,000 8.638 4s 2,000,000 101,520 120,000 60,000 7838 60,000 120.000 7838 120,000 60,000 38 380560 4.000.000 194.400 4,000,000 (soa000) 200,000Requirement 2 1. Cash Discount on bonds payable Bonds payable 2 lnterest expense ‘Cash 3. Interest expense ‘Discount on bonds payable Principal payment Ibserestpaymem (6.000.000 x 6%) ‘Total pasment - 12312020 ‘December 31,2021 Principal payment Interest payment (4.000.000 + 6%) Total payment - 1231/2021 ‘December 34,2022 Principal payment Interest payment (2.000.000 x 6%) ‘otal payment ~ 1231/2022 Prownt value ‘December 31, 2020 (236,000 x 9259) December 31, 2021 (2240,000 x 8873) December 31, 2122( 212000 X.7938) ‘Total presemt value 2 Cash [Dscount on bonds payable ‘Bonds payable Interest expense ‘Cas (6% 6,000,000) Tntorest expense Discount on bonds payable Interest expense (86 x 5,788,332) Incerst paid Discount amortization Bonds payable cash 3. Bond payable 1/1/2020 Discount onbosds payable Principal payment oa 12/31/2020 Caryingamount 123172026 3,805,600 194,400 320,000 60.560 5.788, “21,908 340,000 103,067 2,000,000 4.000.000 320,000 60560 90,000 6,000,900 360,000 10367 463.067 o0.000 STENTS 2,000,000, 6.000.000 | 108.501) ‘coanon iProblem 6-7 1. Interest (P1,000,000. 11.47) Principal (P20, 000,000 « 0.31180) 2 Cash 17,706,000 Discount on bonds payable 2204.00 ‘Bonds payabie| 3. Interest expense (6% x 17,706,900) 1,062,360, ‘Discount on bonds payable ‘Cash 3% x 20,090,000) 4. Interest expense 1,066,102 Discount on bonds payable Conk (Carying amount Sanur 1.2020 AAnwrtation of discount Jantaryo Jane Carrying amount - June 30, 2020 Iteret expense July to Deverber 2020 (6% x 17,768,360) Problem 6-8 1. Inerest (1,000,000. 12:46) Principal {P20,060,000 « 0.377) ah 22,492,000 Premium on bons payable Bonds payable 3, Interest expense ($8 x 22,492,000) remiuen a bonds payable ‘Cash (6% x 20,000,000) 4. Interest expense Premium on bonds payable 79,170 Cash Carying amownt «Samay 1.2020 Premiem amortization January tone Carrying amount ~ June 30,2020 Interest expense July to Deverber 2020 (5% x 2,416,600) Problem 69 Requirement 1 PY of interest payment on 6/30/2020 (240,000 x. 9615) Y of principal and interest payment on 12/31/2020 2,000,000 + 240,000 x.9246) PY of interest payment on 6/30/2021 (120,000 x.8850) PY of principal and interest payment on 12/31/2021 (2,000,000 + 120,00 x 8548) “Tatl present vai 47 1.870.400. 6236000 Two 20,000,000 62,360 1,000,000 4,102 1,000,000 17,706.00 poate eo Lossioa 14,932,000 210.000 Dawe 2.298.000 20,000,000 1.200.000 1.200.000 22.492.000 2070 2.071.108 106.680 sieRequirement 2 Interest Interest Date ald expense Vi2020 «302020 240,000 123172020 240,000 (3020: 120.000 12312021 120,000 Requirement 3 11/2020 Cash Bonds payable Premium on bonds payable (61902020 tntrest expense Cash Premium on bonds payable Invest expense 12/31/2020 Interest expense Cash ‘Premium on bonds payable Interest expense Bonds payable ‘Cah (6120/2021 Interest expense Cash Premium on bonds payable Interest expense 12/31/2021 tuterest expense Cah Premium on bonds payabie Intcret eapense Bonds payable Ca Problem 6-10 PV of principal (7,000,000 x 486) PV of interest (350,000 3 1359), Tora issue price Interest Date paid syroz0 iv20a0 350,000 S201 350,000 Premium amortization Principat payment nan 2,000,000 2.000000 36579 38552, 4220720 240.000 nan 240,000, 74018 2.000000 120.000 36979 120000 3852 2.000000 Interest expense Promium amortization s17900 316858 32,060 32 48 carrying 422070 4189.50 2075.531 203852 4,000,000 200.7 240,000 nan 240,000 4018 2000,000 120.000 36979 120.000 sass 200,000 3192.00 Carrying amount 794%,500 7916400 783.098,2020 March | Cash ‘Bonds pay Premium on bonds payable Sep 1 Interest expense Prema om bonds payable ‘Cash Dec, 31 tnerest expense ‘Accrued intrest payable (7,000,000 x 10% x /12) Premium on bonds payable Imerest expense 33.342 x 4/6) Problem 6-11 PV of principal (6,000,000 x $7) PV of interest (600.000 x 3.60) Tota issue pice Interest Interest Date paid expense 2020 iva 00,000 «69500 2022 600,000 667952 202 June 1 Cash Discount on bords payable Bonds payed Dec. 31 Interest expense “Accrued interest payable (600,000 x 7/12) 11 Inorest expense Discount on bonds payable (69,600 x 7/12) 2021 Jan. 1 Accroed interest payable Interest expense June 1 nterest expense Cash Imerest expense iscoun on bonds payable (69,600 x /12) Dec. 31 Interest expense ‘Accrved intrest payable Interest expense ‘Discount ox bonds payable (7,982 x 7/12) 794,500 317,900 32,000) 253,333 22208 Premium amortization 69,600 71982 5.580.000 “420,000 350,00 40,600 380,000 600,000 29,000 350,00 43an 49 7,000,000 948,500 30,000 233.833 22.208 3.420.000 220.00 So Carrying amount 5,580,000 510,600 5.707.882 6,000,000 350.000 40.600 340,000 00.00 29,000 340,000 sanProblem 6-12 2020 Jan. 1 Cash Bonds payeble Doc 31 Ieterest expense Cash 31 Loss from ange i fir value Bonds payable 202 Dec. 31 Interest expense Cash 31 Bonde poyable Gain fem change in far valve Carrying amovet— 1231/2030 Fairvalue 12312020 resort value of interest (500,000 x 3,312), Present value of pinipal (5,000,000 x 0.735) ‘oss ftom change fe value Carrying amount -12/312021 Fajrvalie- 1231/2021, Present valu of interest (500,000 x 2.402) reson valve of principal (500,000 x 0.712) Gain from change in fir value Problem 613 Answer B Interest expense from Janay 1 June 30,2020 (5,316,030 x 12% x 6/12) Problem G14 Answer D. Interest expense (3,508,000 x 10% x 6/12) Interest pa (3,000,000 x87 x 612) Discouet amonization for six mathe Problem 6-15 Answer B Interest expen from Janay Ito Sune 30,2020 (1,947,000 x 12% 6/12) Problem 6-16 Question | Answer A. Interest expense (102% 3,756,000) Interest pal (Ms « 4.000.000) Discount amonization Discover os bonds payable Less: Amostiation for 2020 Balance ~ December 31, 2020, ‘Question 2 Answer © (4,000,000 228,400) 5,000,000 500,000 331,000 0,000 $70,000 1,656,000 1,201,000 2Sc0000 5,000,000 500,00 331,000 370,000 5,000,000 IE 5,381,000 175,200 E EE 375,400 244,000 aProblem 6-17 Question 1 Answer B Interest expense (5,676,000 x 8%) Interest pai (5.000.000 x 10%) Premium amorazaion Premium on bends payable Less: Amorization for 2020 Balaace~ December 31, 2026 Question 2 Answer B (5,000,000 +629,000) Problem 6-18 Question 1 Answer © Interest expense (5 250,000 x 6%) terest pald (500,000 x 7%) Premium anonization for2020 ‘Premium on bons payable, January 1, 2020 Less Premism amartiation fe 2020 Balance — December 31, 2020 Quertion 2 Answer © (5}000,000 +21 Problem 6-19, Question 1 Answer B Interest expense (495,000 x 10°) Interest pad (5.000.000 x99) ‘Amertization af discount for 2029 Question 2 Answer © Bonds payable Discount on bonds payable (305,000 ~ 19,500) Carrying amount December 1, 2020 Problem 6.20 Answer B Issue price 5,000,000. 98) Bonds payable Dicount on bonds payable Bond issue cost Carrying anount Interest expense (129%: 476,000) Interest paid (10% x 5.000.000) ‘Amartizaticn of discount and issue cost Bonds payable Bond discount andissue cost (240,000 ~71.200) Carrying amount ~ 1231/2020, 31 315000 0000 250,000 Note that under the eficctive interest method. the discount on bonds payable and bond issue cost must be “lumped together52 Problem 621 Question 1 Answer A Question 2 Answer Invorest Ineerest Discount Carrying Date aie expense amortization ‘amount yize20 4.380000 miz20 230.00 274.800 2450 4608800 vient 280,000 628s 26288 4.631088 ‘So Problem 622 Answer © Issue price (5,000,000 x 110) sso Ponds payable 5.000000 Premium on bonds payable 00.000 and isme cst >0>0>0> Semseveere can>oscensCHAPTER 11 Problem 11-1 ‘Regulrement 1 ‘Table of amortization Date Payment (9%) Interest__—_Principal viv2020 1241/2020 600,000 210,00 380940 12512021 600,000 1496s 435035 12302022 600,000 136712 463.288 105,737 Requirement 2 Journal entries for 2020 Jan. 1 Right of use asset 2334,000 Lease liability 2,334,000 Dee. 31 Interes expense 210,060 Lease laity 319,940 Cash 600,000 31 Depreciation (2,234,000 S years) 466,800 ‘Accurnulted depreciation 466,800 Requirement 3 Remeasurement of fase Habilty Therevised leased laity is remeasure sing the new inp inert rate of 12% Annsal rnt for emaining 2 years ofa ease term 600,000 Mulipls by PV ofan ordinary annuity of I at 12% for periods 69, Present value January 1, 2023 ae Anna rent for 5 years starting January 1.2025 00,000 Muliply by PV of an ordinary annuity of 1a 12% for $ periods 3.608 Present valve - January 1, 2035 TRFs.000 -Muliply by PV of an ordinary annuity of 1a 12% for 2 periods 0797 Prosent value January 1, 2023 Das The prseat value of the new rentals on Jameary 1, 2 amany 1, 2023, 2S is rediscouated on the date of extension ow Present value of remaining rentals of old lease term 1,014,000 Present valve of rentals of extended tase term 2am ‘Total presen value - January 1, 2023 Present valve ~ December 31,2022 (ee table) Increase in lease lability on January 1, 2023,Right of use of asict — January 1, 2020 Aveunalated depreciation ~ Desember 3 CCanying amount ~ December 31,2022 Increase in ability on January 1, 2023 ‘New carving amount January 1, 2023 JERS 16, paragraph 39, provides that the remeasarement ofthe leave Hb carrying amount ef te right of ee nse Requirement 4 Date Payment «12% Interest_—Principal Present value win0x 312,848 12a1n0% ‘00,000 397506 2o404 3100s 1231204 0.000 373206 226.794 21883,260 12312025 00,000 3S991 454/009 2429381 1251/2026 00,000 DISIO 508480 920.761 12512007 800,000 rover 599.300) 12028 00,000 62iso 647480 13402 1231200 00,000 86598 713,402 : Requirement $ Journal entries for 2023, 1. To remeasure the lease liability on January 1, 2028; 2,256,811 2.286811 2. Toreovd the annual rental on December 31, 2023; Iimerest expense eae abi Cash 600,000 3. Torecord the anncal depreciation based onthe new carrying amount: Deprevation ass ‘Accumnated depreciation 4573 G94 77 years) Thetota lease tenn is 10 yours miss 3 years expired equals remaining term of 7 years Problem 11-2 Requirement 1 Annual rental fo irs 0 years Muliply by PY of an ordinary annuity of 1 at 8% for wo periods Present valve -Janusey 1, 2020 Annual rena foe next tee years Muiiply by PY of an ordinary anaity of 1 0 8% for dee periods Present value January 1, 2022 Mutiply by PV ofl at 8% fortwo periods Present value -Janwaey 1, 2020 Esk BLEPresent value of annual reals fortwo years Present value of annual eral for next tee years Leas lisilgy— Janaary 1, 2020 Requirement 2 Initial lease iabiity Initial diet cose Enimated restoraticn cost, co ofright of use ant Requirement 3 Depreciation (1.169.147 /5) Requirement 4 Date Payment ‘8% interest wvan20 1773172020 200,000 81,532 123172021, 200,000 72084 1231/2022 300,000 ously 123172023 300,000 12/31/2024 300,000 Requirement $ 1. Rightofese asset Lease ability 3. Imerest expense Lease habiity Cah Requirement 6 2022 Dec. 31 Imerest expense Lease abl cass Problem 11-3, Journal enteies for 2020 ‘Leas lisilty January 1,2020 (200,000 x 6.1948) Jan. 1 Right of we assct Lease lability Doe. 31 Interest expense (|.238,880 x 1286) Lease liability Cash Depeesaton (1,238,880 /12) "Accumulated depreciation 257221 227331 1,069,147 oL8i9 238,181 1236810 148,646 334 103,240 88 330,000 Se Tow 019,147 100,000 082 Dew a Present value ho1.147 900,679 TRB SM3s2 273 019,147 100,000 50,000 2809 200,000 300,000 La3e.st0 200,000 103,240Journal entties for 2023, ‘Adaivonal lease Liability January 1,2023 (300.000 x 5.759) Jan. 1 Right oF use asset Lease lability Dec. 31 Interest expense (|,727,700 x 10%) Lease Habitty Cash Depreciation (1.727.700 /9) "Aecamslaed depreciation Problem 11-4 Requirement 1 Date Payment 10% interest Jan. 1.2020 Doe. 31,2030 300,000 95,100 Dee. 31,2021 300,000 74610 Requirement 2 Jan, 1.2020 Right of use asset Lease habiity Depreciation (951,000 4) ‘Accumulated depreciation Requirement 3 1,727,200 172,770 170 191,967 204,900 235,390 951,000 204300 237,350 Present vals of ase paymenie on Sonmary , 2022.8» result ofthe modification (300,000 x 3605) ‘Carrying amount on January 1, 2022 per schedule Increase m lease ability Requirement 4 Dore Payment Interest Jan. 1.2022 Dee. 31,2032 300,000 300,000 Doe. 31,2024 $300,000 ¥ Dee. 31,2035 300,000 60353 Dec. 31,2036 300,000 32037 Principal 170,220 190,636 2054 BeT 267.963 89 1727700 1.727.700 300,000 191,967 ‘Lease lability 951,000 746.100, $20,710 300,000 237730 1,081,500 a0 ENT Lease Kabiity 1,081,500 ‘11280 nos 307.110 267963,Roguiremeat § Jan, 1.2022 Right ofuse asset ‘Lease ib Dec. 31,2022 Interest expense Lem babity, Cash Depreciation ‘Accumulated deprecation Cost Accumulated depreciation - December 31, 2021 (237,750x 2) Carrying amount January 1,202 nore in lease habiliy Aaiusted carying amount Depeesiation for 2022 (1,036290/'5) Problem 11-5 Requirement | Date Payment 0%ointerest Jan, 1.2020 Dec. 31,2000 200.000 753816 Dee. 31,2021 200,000 65.398 Requirement 2 Jan, 1.2020 Right Fuse asset ‘Lease bili Dee. 31,2020 Interestexpense ese habiity, Cash Depreciation (758,160 8) ‘Accumulated derecation Requirement 5 ‘Decrease in loo space (8,000 1,780) ‘Decrease in scope ofthe Lease (1.250 5.000) Cost Accumulated depreciation — December 31, 2021 (151,632. 2) Carrying amount ~ December 31, 2021 ‘Decrease in lease lsbilty (497,374 x 25%) ‘Decrease in carving amount of right OF use asset (454,896 x 2574) Termination gain Requirement 4 29,780 170320 207288 nat8a 16,602 758,160 75816 ages Isix2 Present value of lease payment on January 1, 2022s a result of modification (150.900 2571) Remaining lease ibility (497,374 ~ 124,348) Increase in ease ability 360,790 300,000 207238 951,000 azssa 473300 758160Requirement 5 Dae Payment £9 Interest Jan, 1,202 Dee. 31,2022 130,000 Dee. 31,2023 150,000 Doe. 31,204 150,000 Requirement 6 Jan, 1,202 Lease ibility Accumulated depreciation (25% x 303,264) Right of use asset (259% x 758,160) Termination gain Righs ofuse asset Les ability Imerest expense Depreciation (834,707 /3) ‘Accumalated depreciation Remaining carrying amount (454,896 ~ 113,724) Increase i ease Hadi Adjusted canying amount of th right of use asset Problem 1146 Requirement 1 ‘Lease ibilty~ January 1, 2020 (100,000 x 4.2124) Date Payment 6% interest Jan. 1.2020 Dee. 31,2020 10,000 23am Dee. 31,2021 $0,000 Requirement 2 Jan. 1, 2020, Right of use asset Lome liability Dee. 31, 2020 Interest expense Lease Hiablity Cash Deproviation (421,240 3) ‘Accumslated depreciation Requirement 3 ‘Modified lease lability (80,000 x 2.5771) — January 1, 2022 Carrying amours on January 1, 2022 ‘Decrease in tease Iebiity OL Principat ‘Lease labiiey 386,565 Li9.07s 128.601 138.899 7 199.540 104620 Ia. 13,538 sos2s ni9.07s 130,000 118,236 18336 3a1172 333, Principal Lease liability 421290 176 346 514 920 267 210 an240 100,000 4248, eanas 206,168Requirement $ Date Payment 8% interest Jan. 1.2002 Dee. 31,2022 30.000 16.493 Dee. 31,2023 30,000 nals Doe. 31,2034 30.000 5.926 Requirement $ Jan, 1.2022 Lease lability Right of we asset Dec. 31,2022 Inverestexpense Lem lability, Cash Depreciation (191,607 /3) ‘Accumulated depreciation Cost oF right oF use asset Ascumulated depreciation January 1, 2022 (84,248 x2) Carrying amourt—Jansary 12022 Decrease in lease lability Aajustedcarying amount Problem 11-7 Question 1 Answer © Present value fr fist tree years (300,000 x 249) Prosent value for mex ive years (400,000 3.79) Malolyby PV of at 1 fr reps Pen ale frit eos Lease ibility Jamuary 1, 2020 Question 2 Answer A Ierest expense for 2020 (10% x 1.884.000) Question 3 Answer A Question 4 Answer B Date Payment 10% interest vvzao 13300 300,000 188,400 rau2e1 300.000 177240 1231202 300,000 164,964 1312023 400,000 Isi.460 Principal 8.01 68.587 oor 6137 16.893 63807 63,869 Principal 111,400 122760 BSG6 248,540 Lease liability 206,16 142.61 74074 1.516000 2 T7000 perisiny ‘Lease tabilicy 1,384,000 172.800 Les9620 1514604 1266,064CHAPTER 12 Problem 12-1 Requirement 1 Rooks of Lessor 1. quipment Cash 2 Cash (40,000. 9) ‘Rent income 3. Cah ‘Uncarned ren income 4. Repairs Cash '. Uncarned reat income ‘Reet income (126,000 /3=40,000x 912), 6 Depreciation ‘Accumulated deprecation (3,000,000 | 10) Requirement 2 ent income (360,000 + 30,000) ‘Less: Repairs Depreciation Net income of lessor Problem 12-2 Books of Lessor 1. Tractor Cash Cash Reet income 3. Repairs Trnsporation Cash 4. Rent income ‘Uncamed ren income (50,000 x 3) 'S. Depreciation ‘Accumulated deprecation (1,500,000 15) 3,000,000 360.000 120000 20000 30000 100,000 20000 1,600,000 600.000 93 3,900,000 300.00 120000 20000 30000 300,000 390,000 1,800,000,Problem 12-3 Requirement 1 Books of Lessor 1. Machinery ‘cash 2 Cash 36.000 x9) Ren income 3. Deferred initial dircct cass Cash 4. Ameetiation of initial diet costa ‘eerred initial ditect costs (20.000 / 4 = 30,000 x 9/12) Depreciation ‘Accumulated deprecation (2,409,000 /10 x 9/12) ‘Accumulated depreciation Carrying amount Deferred intial diet cos Adjusted carying amcunt Problem 12-4 Requirement 1 ‘Books of Dorey Company Jun, 1 Machinery Cash Mareh 1 Cash Rent income 1 Lease expeme Cash Dee. 31. Depreciation ‘Accumulated deprecintion (5.000.000 / 10) 31 Rentincome ‘Uneumed vont income (1.200.000 x 2/12) Requirement 2 Romi recived neared ret income 2,400,000 324.000 120,000 22,300 180,000 5,000,000 1.200.000 00 00,000 200,900 $000,000 1,200,000 500,000 200,000 1,200,000 (200,000)Problem 12-5, 1. Machinery Cash 2 Cash Rent income 2% Cask ‘Unarmed rent income 4. surance cas 5. Depreciation Accumulated depreciation (4,800,000 /12) 6 Uneamed ret income Rent income (300,000 /3) Problem 12-6 20 1 Equipment Cash 2. Buipment Cash 2021 1 cash Rent income 2 Repairs “Transporation Cash 3 Depreciation ‘Accumulated depreciation (450,900/ 5) 4. Rem income ‘Unarmed rent income (15,000 3) Problem 12-7 2020 Kent receivable Rent income Total rent (100,000 x 51 months) Average ans! re (3,100,000 3) ‘Rem from Apel Ito December 31, 2020 (1,020,000 x 9/12) 2021 Cash (100,000 x 12) ‘Ren income Rent excivable 4,800,000 $50,000 80.000 400,900 375,000 75,000 80.000 7,000, 3,000 90,000 45,000 765,00 1,200,000 1.200000 95 4.300.000 $8000 300,000 #0000 400 000 100,000 375000 10000 90,000 45000 765,000 5.100.000 920.000 765,000 1,920,000 180.000 1.920.000 180.0002023 Cash 1,200,000 Rent income 020,000 Ret receivable 180,000 2024 Cash 1,200,000 Rent income 1,020,000 Rot receivable 180,000 2025 Cash (100,000 3) 300,000 Rent income 1,020,000 » 12) 255,000 Rent receinable 5,000 ‘Te rewal fr 2025 is for three months only, from January 1 Aprit Problem 12-8 Books of Lesor 2020 Rent recivable 87,500 ‘Rent income 877300 Total rent (300,000 x 117 remaining mons) 35,100,000 Average annual rent (35,100,000 10) 310,000 ‘Kent from Ocober I, to December 31,2020 (3,510,000 8 312) 577,300 2021 Cash (300,000 12) 3,400,000 Rent income 3,510,000 ‘ent recenvable 90,000 2030 Cash (300,000 9) 2,700,000 Rent income (3,510,000 x 9/12) 2,632,500 Rent receivable 67,500 ‘The ren forthe lst year 2030 is for 9 mmonths fom January 14 September 30,2030, Problem 12:9 Books of Lessor 2020 Cash 600.000 Rent receivable 0,000 Rent income 1,200,000 Average annual ret (3,600,000 /3) 200.000 2021 Cash 300,000 Rent receivable 300,000 Rent income 1,200,000 2022 Cash 2,100,000 ‘Rett income Rent recenableProblem 12-10 Answer © First year (1,200 1,000) Second yeor (3,000 x 1,000) Thind year (3.000 x 1.000) Total rental revenue Average anual rental (7,200,000 /3) ‘Rental revenue fm January! to September 30, 2020 (2,400,000 x 9/12) Problem 12-11 Answer C Fest year (800,000 6/12) Second yeer Thiad year Fourth ye Filth year Total rental evense Average annual rental revenue (5,400,000 / 5) Problem 12-12 Answer B 2020 (400,000 x 12 2021 (180,00 x1 2022 (200000 x 12) 2023 (250,000 x 12) Total ret over the lease term Average annual rental (8.400.000 /4) Rem income fr 2020 and 2021 (2,100,000 x 2) on callecod in 2020 and 2021 (1,200,000 + 1,800,000) Rew receivable 12/51/2021 Problem 12-13 Answer B Average anual rental (7,000,000 5) Rent income fi 2020 and 2021 (1.400.000 x 2) Ren collected in 2020 and 2921 (1,900,000 + 1,000,000) Rem receivable ~ 1231/2021 Problem 12-14 Answer A Rom income ‘Less: Amortization of intial iret costs (150,000 / 10) Depreciation Insurance and property tax Net rent income Problem 12-18 Answer © Anal rental “Atmortization of lease bonus (300,000 /3) I rent revene 13000 120,000 1.200.000 40,000 1.280,000 1250,000 1380.00 900,000 lkProblem 12-16 Answer © ‘Annual rena 350,000 “Ameetization of lease boous (300,000 /3) 00.000 “otal 950,000 {eos Depreciation 400906 Iesurance 0.006 sxo.000 Operating profi 70.000 Problem 12-17 Answer B “The second year’s rest of PS00.000 which was received in 2020 is uneamed rent income and therefore shown asa current liability on December 31,2020, ‘The deposit of PI, 000,000 is unearned rent deposit clssified as noncurent ibility because iti applicd to payment of rent forthe last two years ofthe lease Problem 12-18 Answer B. Refine security deposit sno Problem 12-19 Answer A ‘Netra income (810,000 ~ 600,000) 219008 Problem 12-20 Answer A ‘Pretax income (720,000 ~ 68,000 ~ 360,000) 220000 Problem 12-21 Problem 12.22 Problem 12-23, co>ce neoeoCHAPTER 13 Problem 131 1. Gros rentals (600,000 « 19) 6,000,000 ‘ec inestment in the lease: Cost of equipment 6.392.000), I iret costs (ai soay ‘oval financial revenve asecon 2. PY factor (3,333,400 / 600,000) $889 ‘This eter is appicableto 11%. Ths, this isthe new implicit rate im computing interest income. 3. Equipment 133,400 Cash 143,400 Lease receivable 6,000,000 Equipment 3.533.400 ‘Unearne imeret income 20,400 Cah {600,000 Lease receivable (600,000 Uncamed interes income 398674 Interest income (11% x3,533.400) 388,674 Problem 122 Requirement 1 Gross ret (900,000 « 8) 7,200,000 Residual vale 00.000 Gross investment debit to lease receivable T.s00,000 ‘Net investment ~ cos of equipment S2s0.u00 “oal financial revenue coe Requirement 2 Date Payment Interest Principal Present value 220 5,230,000 virae20 00,000 90,000 453:0,000 wine ‘900,000 22,000 374,000 3.972.000 vam 00,000 476,640 423,300 3.588.640 vans 00,000 25,97 a1 Sonar? viene 900,000 3583837 331,008 2348418 wires 900,000 305,210 594,790 1948.608 vie6 00900 anins (66,165 e480 vw227 900,000 153,895 746,105, 336.354 Mews 100.00 iat 536,384 : im aeRequirement 3 2020 Jan. 1 Lease receivable Equipment Uncarned interestincome 1 cash ‘Lease wecivable ec. 31 Uncamed interest income Tmveres income 201 ddan, 1 Cash Lease eceivable Des. 31 Uncamed interest income Tnverest income Requirement 4 207 Jan. 1 Cash Lease recivable (Final payers) Dee. 31 Uncamed interest income Ieveres income Requirement S 208 Jan. 1 Equipment [Los of inane: lease Leise receivable Problem 13:3, Requirement 1 Cont PY of residual value (200,000 x 5066) [Net investment to be teaver fom rental Divide by PV factor ‘Annual retal Requirement 2 Date Payment viza20 yi72020 69.90 12312020 62990 12312021 7.0 12312022 629.190 12312023 69.490 12512024 29.490 123172025 porno iemow 284,461 24038 196,686 144.789 86580 7.300.000 900.006 522,000 900,000 276640 e346 00,000 00,006 Principal 29.490 345,09 386.532 82,904 aaa 542.910 17894 100 63,646 3,000,000 oL» 2898680 perry —ieaee Present value 3.000.000 2370510Requirement 3 2020 Jan, | Machinery Cash 1 Lease receivable Machinery {Uncarnd imerest income Gross rentals (29 940% 6) Residual value Grow investment ~ debt to lense receivable Netinvestment cost of machinery neared interest income 1 Cash Leas receivable (First payment) Dee. 31 Cash Lease eevivabe 31 Unearmed iaterest income Interest incon (2020 imrest income) Requiresnent 4 20s Dee. 31 Unearned interest income Tnteren income (QOS intrestincome) Requirement 5 ams Dee. 31 Machinery TLeise receivable 101 3,000,000 5,000,000 3.976940 3,000,000 976940 3776940 To76940 Luooioos ‘Lassa 629,490 «29490 629490 29490 284401 sass 21,406 21,406 200,000 200,000 If the entriss from 2020 1» 2624 are properly reconied and posted, the lease recivable has debit balance of P200,000 equal tothe unguaraneed residual value, and the unearned hhasa zero bance. Problem 13-4 Requirement 1 Gross rentals (400,000 x 4) Nec investment inthe lease ‘Total financial reverse Payment vino 400,000 02 400,000 202 400,000 vaa03 400,000 yerest 101323 75390 sien eres iecome 1,800,000 Auzzsst ana Present value 1a77a80 977480 685,003 360353Requirement 3 2020 Jan. 1 Lease receivable ‘Machinery ‘Uncarned snerest income 1 Cash Lease receivable Lease income Dec. 31 Uneamed interest income Interest income 201 Jan. 1 Cash Lease receivable Lease income Dee. 31 Uneamed interest income Interest income 20m Jan. 1 Cash Lease receivable Lease income Dee. 31 Uncamed interest Tinerestncome 20 Jan. 1 Cash Lease receivable Lease income Problem 13-5 Question 1 Answer Question 2 Answer Question 3 Answer Question $ Answer Problem 13.6 Question 1 Answer C Question 2 Answer A Question 3 Answer A eros Cox of equipment Present value of residual value (200000 x 466) Notinvestment 10 be recovered rom rental Antal rental (4.268,000/ $38) 1,600,000 40,000 107523 440,00 75,380 440,000 3947 440,900 102 1377480 222,520 00,000 40,000 107823 400,000 40,000 75380 0,000 40,000 39.687 400,000 40,000103 Problem 13-7 Question 1 Answer © 6,000,000 Question 2 Answer B 9,082,708 Question 3 Answer A 082.708 Question # Answer © 900,000 Probtem 13-8 Question 1 Answer A Question 2 Answer B Question 8 Answer B Question + Answer Problem 13-9 Answer C This is mathematical, The procedie is to determine the annual rental pa the aset divided by the present value Gtr of annuity of 1". According! 73,234,000 divided by 4312 or P7S0,000, rt which is equal wo de “eon the annual rental ie equal Wo Lease receivable (250,000 x5) 3,750,000 Present vali of rentals (hie vale) so Total merest revenue ion Problem 13-10 Answer B Present value of rentals equal tothe cost of asset 4,400,000 ‘Adsanee payment on January 1, 2020 200.000 Balance ~ January 1, 2020 mow linerest income fer 2020 (7,200,000 x 9%) ‘sat.000 Problem 13-11 Answer A (2,898,000/ 460) oxo Problem 13-12 Anewer C Cos of asset 5,239,000 PV of guaranteed resid value (2,000,000 x 68) » Net investment tobe recovered from rental 587,000 Divide by PV of an annuity of 1 in advance at 8% fr yoans 4 Anouat lease payment — Problem 13-18 Anewor © (7,994,000/ 2439) aa Problem 13-14 Answer A Con ofasct 2,300,000 Divide by PV of an annuity in sdvanceof I at 12% for sic periods io Annual lease payment Titow transferred to the lessee at the end of leas Theresidual value is ignored becwase itheProblem 1315 Question 1 Answer © air value Divide by PV ofan ordinary anmuity of I at 10% for tn periods ‘Annual lease payment Question 2 Answer D Anna ease payment Executor costs ‘Total anoual Tease payment Question 3 Answer A Gross imvestmet (480,000 x 10 yeas) ‘Net investment equal tothe fai ale Uneamed inert income Problem 13:16 puprerps aunasos> 104105 CHAPTER 14 Problem 141 2020 Jan. 1 Leasereceivable (600,000 « 8) 4,800,000 Sales 3.520000 neared inerst income 1.380.000 1 Intat irect cos 50,900 Cosh. 50,000 1 Cash 0,900 Lease receivable 00,000 Dec. 31 Uneamed interest come 292,000 Imierst income 292,000 Date Payment —10%interest_ Principal «=—Present value v30%0 3.320000 12020 ‘600,000 {600,000 ‘000 et 600,000 308,000 2612000 we ‘600.000 338800 2373200 204 Jan. 1 Cash 00,000 Lease receivable 600,000 Dee. 31 Uncamed interest ioome 261.200 Tiers income 261200 Problem 142 Books of Fox Company (Lessor) 2020 Jan. 1 Lease receivable (500,000 x 10) 3,000,000 sles Unctmed interes income 1 Cost of gods sold 2,675,000 ventory 2,675,000 1 Cash 00,000 Lease receivable 500,000 Dee. 31 Unvarnedinteres income 319,800 Interest income 319,800 Date Payment 10% interest Principal ‘Present vale win 3,185,000 vr2020 500,000 500,000 2,665,000 wizan 500,000 319.800 180,200 2k 400 12022 500,000 298,176 201,84 2,282,97621 Jan. 1 Cash Lease receivable Dee. 31 Uncamed interest income Interest income Books of Tiger Company (Lessee) 2020 Jan, 1 Rightof use asset ‘Leas ibility ity Dee. 31. Deprociation (3,165,000 / 10) ‘Accumulated deprsiation 31 aorest expense ‘Acerved interest payuble 2021 dan, 1 Accrued interest payable ‘Lease ibility Cash Dee. 31 Depreciation ‘Accumulated depreciation SI Interest expense “Aecracl interest payable Problem 14-3, Books of Universal Company (Lessor) (Goss rentals (700,000 x 8) ‘Unguaranted residual valve Lease receivable ~ gross investment Present vale: ‘Gross rentals (700,000 x 4.968) Unguaranteed RV (400,000 x 404 LUneared inerest income Cost of equipment sold Less: PY of unguaranteed RV ‘Cost of goods sold 1. Lease receivable Cost of goods sold Sales (equal to PV of ental Uneamed interest income Inventory 2 Cash Lense receivable 3. Uneamed interest income Interest income (128 x 3,639,200) $00,000 298,176 3.165.000 500,000 316,500 319,800 319,800 180.200 316,500 298,176 3.477.600 lone 6,000,000 1,838,400 700,000 436,708 106 300,000 298,176 3,166,000 500,000 316,500 319,800 500,000 316,500 298,176107 Rooks of National Company (Lessee) 1 ight of use asst (700,000 x4. 908) 3.477.500 Lease lability 3.477600 “The esiual valucisenguaranteed, itis not included in the compatation of the Isste"s ease abiity 2 Atorest expense (12% x 3,477,600) 417312 Lease Hiabilty AIAN Cash 700,000 3. Depreciation 484,700 ‘Aceumelated depreciation (3.477.600 /8) 434700 Problem 14-4 ‘Gross rentals (3,000,000 x 5) 15,000,000 Residual value guoranice —Lnon.009, Geos imvesiment 6.000.000 Present vale: Rentals (3,000,000 x 3.60) 10,800,000 Residual value (1,000,000 x 57) a0 = Lzuow “Total uncered financial eveave coon Sales 11,370,000 Costof goods sold ‘Cest of machinery (000000) Inia direct cout, 300.000 Gross income Siz0.000 Books of Vanderbilt Company (lessor) 1. Lease receivable 16,000,000 Cost of goods sold 000,00 Sales 11,370900, Unezmed interest income 4'630.000 Inventory §,000.000 2 Costof goods sold (Initial dint coss) 300,00 Cash 310,000 3 Cash 3,000,000 Lease receivable 3,000,000 44 Uncamed interest income 1,368,400 Interest income (12% 11,370,000) 1,364,400 Books of Thunder Company (lesiee) 1. Right of use asset 11,370,000 ‘Lease lability 1.370000 2 fntorestexpense 1,364,400 ence Hbly 1485 500 Cash 3,000,000 2. Depreciation 2,074,000 ‘Aceumaated depreciation 2.074000 {11,370,000 ~ 1,000,000 /5)108 16,643,550 sexe aoassso ‘The residual valu of P 500,000 i ignored by the fessor because ownership ofthe assets is transfered to the lesee atthe end ofthe leace torn 2. Sales price (equa 0 present value of renal) 12,000,000 Cost of goods tol: Cost of equipment 8.000.000), nial direct costs 210,000), Gross prott Smoot 3. Atorestincome for fst year (12% x 12,000,000) Lagonee Requirement 4 Journal entries 1. Lease receivable 16,643,550 Sales 12,000,000 Unicamed iteset income 4.683.550 2. Cos. of goods sold 8,000,000, Inventory 8,000,000 3. Cost of goods sold (intial dicet costs) 200,000 Cash 200,000 4 Cash 3.28710 Lease receivable 3228710 5. Uneamed interest income 1.440.000 Interest income 1,440,000, Problem 14-6 Requirement 1 Gross remtals (700,000 x 8) 5,600,000 Present value of rentals (700,000 x 5.868) Auuozisoo ‘otal financial revenue Laezaag Requirement 2 Sales present value of rentals 4,107,600 Cost of poods wld cost af equipment 2.000 Gross profit onsale ae Requirement 3 Date Payment Interest Principal Present value 412020 4.107600 2020 700,000 700,000 3/407/600 700,000 340700 359,240 048,360 700,000 s04836 398 168 2es3,1962010 April 1 Lease reeivable ‘Sales Uncarted intrest income 1 Cost of goods sold Taventory 1 Cah Lease recivable Dee, 31 Uneamed interest income Theres income (640,760 912) 2001 AApail 1 Cash Lae receivable Dee. 31 Unearmed interest income Interest income 1120220 3/31/2021 (340.260 x 3/12) 4172021 w 12/312021 404836. 9/12) ‘ol interest income for 2021 Problem 147 Requirement 1 Gruss rentals (900,000 x 20) Present value of rentals (900,000 x 9.36) Toul financial revenue 5,600,000 3,760,000 700.000 285570 700,006 313817 109 4.107.600 492.400 3,760,000 700,000 255570 700,000 313817 85.190) wae? ist 18,000.00, Bseo09 las Theresidual values ignored bevause ownership is transferred to the lessee at the Kase expiration, Requirement 2 Sales ~ equal to present valve of rentals ‘Cont of goods sold Gross profit on sale Requirement 3 Date Payment 12020 4117200 900,000 4s12021 900.000 422 900,000 2020 April | Lease receivable ‘Sales Uneared interest income 1 Cost of goods sold ventory 752,400 73760 Principal 900,000 157,600 102, 18,000,000 6,000,000 15424000 ‘s.00.008 2a Present value 8.424000 75240000 7376400 7214040 8424000 91376000 6,000,000110 2000 Ap 1 Cash 0000 ‘Lease eceivale vo0900 Dec. 31, Uneamed intrest incame 564300 Interest income (52.400 x 9/12) 564300 20a Apa 1 Cas 100.900 ‘Leste ecivable 00 00 Dec. $1 Uneamd intrest income miss Tare incre 741330 \y12001 w 39172021 (792,400 312) 1x 100 4/1/2021 to 12/31/2021 (737,640 x 912) ie Total interest name for 2021 ue Problem Mt Requirement 1 Gros ems 75,0 x8) 7.900.000, Bargin purchase optn anon Gres investment Tiamat Present vale af gros etal (875,00 x 5.8684) 534880 Present vale of bargin pane option (300,00 4665) isp9se onl presen ale Te Gross ives 7,300 Tout present value sua Unarmed income pricey Requltement2 Sales equal tal resent value 5.274800 Fost of goods sol Requirement 3 Dat Payment Interest Principal Present 5.274800 875,000 - 87300 4399800 875,000 439,010 435920 3.968.780 Jon. 1, 2022 875,000 396.418 R52 3.486.258 2020 Jan 1 Lease receivable 7,300,000 Costof goods sold 31100,000 Sales Unearmed interest income Inventory 1 Cash 875,000 Lease receivable 373.000 Dec. 31 neared intrest income 89980 Interest income 439930un 201 Jan. 1 Cash 875,000 Lease receivable 875,000 Dee. 31, Unearsed interes income 236.78 Tnterest income 396878 Requirement # 2027 DDee.31 Cash $30,900 Lease receivable 300,000 Requirement 5 277 Dee. 31 Imentory 200,900 {Loss finance lease 00.90 Lea receivable 0.000 Problem 149 Requirement 1 ‘Gross rentals ($00,900 x 5) 2,500,000 Present value (500,000 x 360) Lageuge Unearmed interest income am Requirement 2 Sales 1,800,000 Costof goods sold Lovenae ‘Gross pri ue Date Payment Interest. Principal Present value Jam. 1, 2020 1,800,000 Dee 31,2020 500.000 216000 234.000 1.516.000 Dec 31,2021 500.000 ish920 318.080 197.920 Dee 31,2022 500,000 143780 386,250 ‘41,570 Reauirement 3 2020 Jan. 1 Lease receivable 2,500,000 Sales 1.800.000 Uneamed interest income 700,000 Dee M_Cish 0,000 Lease receivable 500.000 31 Uncored interest income Interest ncame 216.000 2021 Dee. 31 Cash 500,900 Lease receivable 00.000 31 Uncamed meres income 81920112 2022 July 1 Uncamed interest income 71815 Tnterest income (143,750 x 1/2) nas 1 Cash Uneamed interes income Lens en le of leased asset Lean receivable Lease receivable ~7/12022 500.000 ‘Uneamet inert income - 7/1/2022 ams ing amount 209,798 ‘Actual sale price 2 2eome {Loss onsale of leased asset ent LUncamed nares income 11/2020 700,000 Interest income recognized 2020 2001 22 460.205 ‘Uneame interest ncome - 7/1/2022 2020s Problem 14-10 Answer B Sales revenue equal othe present vale of ease payment - lower 2.780.000 ‘Caring amour of equipment sot ‘Xowo.uo0 Profit onsale ee The sales revenue recognized atthe commencement ofthe lease term by 2 manufctarer or dealer lessor Ss oq oe fr ale of te att othe prea vate of te minimem eae ponent, whichever s Problem 1411 Question 1 Answer B Question 2 Answer D Problem 14:12 Question 1 Answer Profi om sae (3,520,000 ~ 2,800,000) coed Question 2 Answer Bb Date Payment 10%nterest_ Principal —_—Present value 1/2020 3.520.000 2000 600,000 - 600,000 2930.00 202 600,000 292,000 308,000 zona Jaly | to December 31, 2020 292,000 x 12) 46.000113 Problem 14-13 Question 1 Answer Question? Answer Question 3 Answer B Date Payment —Loranterest_ Principal vvan20 ano 385.080 z Mana 355,080 204,402 150,588 Selling price o ir value ‘Less: Cost to Gallani Company Profit om sale ‘Ads: Interest income ~ 2020 ‘Total income be Problem 14-18 Question 1 Answer A. Question 2 Answer A. Gross rentals (1.500.000 x 20) 39,000,000 Present valuc oF air value of asset (1,500,000 x 8.37) ssn Unarmed financial revenue asco Observe thatthe present value of rentals is ower than the fir value of the asst, Note also that the residual value is evored because the ownership ofthe aset will transfer to the lessee at the end of. the lease term. Question 3 Answer B Frairvalue of et sales price 12555000 Cost of asset 6.000.000 Prion sale ssn Question 4 Answer C PV of reals equal tthe fir vale of amet 12,555,000 Payment of Sanary 1, 2020 all applicable principal Laon Balance - January 1, 2020 peeaarenS Inert income fr 2020 (11,055,400 Lasoo Problem 14:15 Question 1 Answer B ess rena (1.500000 3) 7.300.000 Reshhal vos "me Gros imesinent Towo.00 Ne invement ‘s.000 Total financial revenue TusaQuestion 2 Answer B PY of retal (1,500,000 x 3.60) 5,400,000 PV of residual value (500,000 x $7) asso00 Net ivestinent ‘Tonos Question 3 Answer A. Antorest income for 2020 (12% x $,648,000 so2i0 Question 4 Answer A. Sales 5,400,000 Casto goods sold (4,000,000 - 285,900) 715.000), Initial devet cont C2ano00, Gross pro Lassoua Problem 14-16 ‘Question I~ Answer B cons retals (2,000,000 10) PV of rental (2.000.000 x 6.38) “otal francial revenue ‘The residual value is ignored because the ownership ofthe asset will raf to the lose a the ead oft Tease term, Question 2~ Answer B Sales 12,640,000 Costot sales ow. ees pro oon Question 3- Answer © PV of reals 12.64@.000 First payment on January , 2020 000.000) Balance V1/2020 HITE Interest income for 2020 (12% x 10,660,000) 421210 Problem 1417 Question | Answer A Sates price La875.000 Costof goods sold (5500,000) Initial deer cox. (S000) Profit onsale aon Th ei vidi gnored beste he emai of the su wl meer fo the ne ted fhe lease om, Question 2 Answer A oss rentals (2,500,000 x10) 25,000,000 Present valve of rental —equsl tthe sale price scs.000, ‘Uneamned iterest income ~ January 1, 2020 AoS.000Question 5 Answer B Present value of rentals Advance renal payment on January 1, 2020 Balance January 1, 2020 Interest income for 2020 (12.375,000 x 14%) Problem 14-18 Anewer D Date Payment 10'sinterest i200 i200 ‘900,090 . von ‘900,000 438,000 2022 ‘900,090 301800 Problem 14-19 Answer B Sales revenue Cos of goods sold Legal fees initial diet cost (Gress profit on sale Problem 14-20 Question 1 Answer B Interest income for 2020 (10% x 4,850,000) Question 2 Answer © Lease receisable ‘Uneaned interest income (1,000,000 ~ 485,000) Carrying amount ~ 12/31/2020 Question 3 Answer A Sale price Carrying amon of ase recsivable Loss onsale oF machinery 1. To recognize Unearmed interest income Tinerest income 2. Toeeond the sale ofthe machinery: Cass Uneamed interest income Losson sale oF machinery Leis receivable iret income For 2020: 1s 14875,000 2.500.000 Sire se Principal Present value 5,280,000 90,000, $380,000 462,000, 3,918,000 508200 3.409.800 750,000 (600,000) 485,000 485,000 3,280,000 15.000 285,000 5,850,000116 Problem 14-21 aperansones possnccsssCHAPTER 18 Problem 181 1. Current service cost Imeret expense (10% x 6,000,000) Invcret income (10% 5,000,000) Employee benefit expence 2. Acta run Inert income Remetsurement gain on plan suste 23. Employee benefit expense 1,650,000 Cash Remessurement gain — OCT Prepaid/acerved benefit cost 4. PIABC. January 1 Credit adstment P/ABC ~Devember31 S. EVPA~ tanwary Contibution ‘Actua reurn FVPA~ December 31 PBO-Jamary! (Current serve cost Ierent expense P.O December 31 PIABC ~Decemier’1 (6,850,000 ~ 150,000) Problem 182 1. Current service cost Inorent expense (1096 x 6,500,000) Inerest income (10% 5.750.000) Enployce benefit expense 2 Actual urn Irvcrest come ‘Remeasurement gain on plan assets 3. Employee henefit expense 575,000 Prepaid/accruedbenefiteost 350,000 Cash ereasurement gain - OCT 4. PIABC January 1 Debitagjstent PIABC ~ Devember31 141 00,000 125,000 730.000)5. EVPA January | Consibation ‘Actua etum Dente pid FVPA.- Decerber 1 PBO-Janwary 1 Curent service cost Angerest expense Benefits paid PRO- December 31 F/ABC ~ December 31 (7,250,000 - 7,680,000) Problem 15-5 1. Currentservice cost Pastservice cost Iineret expense (10% x 7,600,000) Ingorest income (10% x 6,700,000) Employee benefit expense 2 Acta tum nowt income Remeasuremert loss on plan assets 3. Employee tenett xponce 1.xse,000 Remeasurement loss - OC] 170,000 Cash Prepaid accrued benefit cost 4. PABC January | Credit afjustment ABC December 31 S. EVPA Janvary | Consibation Interest income Remeasuremet les on plan asste Denefits paid FVPA - Decenber 31 PRO - lanuary 1 Current service cost Pastservice cost Interest expense Benefits pot PRO December 31 ‘Prepaidiacrued BC - December 31 (7,900,000 - 9,310,000)Problem 18-4 1. Retsined eoemings Prepaidiacerued benefit cost 2. Cament service cost Ietcrest expense (8% x 7.500.000) Interest income (8% x 6,000,000) Employee benefit expense Aces return Interest income Remeasuremert gain on plan asets 3. Employee benefit expense ‘Cash Remeasarement gain OC 1 Prepaiaccrued henefiteost 4. ABC Jonuary | “Transitional effect eredit Credit adjustment TAB Devember 31 S. EVPA—January | Conuibation ‘Acta etm Benefits paid FVPA December 31 PBO- January 1 Curent service cost Ibierest expense ‘Benefits pad FBO — December 31 P/ABC - December 31 (7,050,000 - 8,850,000) Problem 18-5 1. Cunent service cost Interest expense (10% x 7,500,000) Ievcrestincome (10% x 6,500,000) Employee benefit expense ® Total remeasurement gain - OCI 3. Employee benefit expense Prepaidiacerved benefit cost Cash Remeasurement gain = OCL 1.420000 1,300,000 250,000 143 30,000 1,200,000 550,0004 P/ABC — January 1 Debit adjustment PIABC ~ December 31 VPA January | Contribution ‘Actual retrn Benefits paid FVPA~ December 31 PRO January! ‘Current service cost Invest expense Decrease in PO Benefits paid PBO ~ December 31 ABC — Deeember 1 (7,000,000 Problem 18.6 Ressined carmings Prepaidiacerued encfit cost Prepaidvaccroed benefit cost Retained earings (Current service cost Interest expense (6% » 5,500,000) Ietcrestinsome (6% x 4.780.000) Employee bereft expense ‘Actual reurn Interest income Remessurement gain on plan assets Increase in PBO ~ actuarial loss [Net remessurement gain = OCI Employee benefit expense Prepaid/aceroed benefit cost ‘Cash Remeasuremant gain OCT P/ABC— Janvary 1 “Teanstonal effect —crdit ‘Trantional effect — debit Debit adustment P/ABC — December 31 1.250000 550,0006. EVPA- Janay Contribution ‘Actual return ‘Benefits paid FVPA~ December 31 PBO-Jmury! (Current serve cost Interest expense Increase in PHO ‘nefits pid PBO - Devernber 31 P/ABE—December31 (8,490,000 - $910,000) Problem 18-7 1. Present value of defined benefit obligation sted ‘Lamp sum payment Gain on settlement (Current service cost Inorest expense (12% x8,000,000) Tnteret income (12% x 6,000,000) Gain on setement Employee berefii expense ‘Actual return Imorest income Remessurement gain on plan assets 3. Employee benefit expense 940,000 Cash Remeasurement gain OCT Prepaid/accrved benefit cost 4. D/A BC Sasuary | Credit advent PABC- December 1 5. EPA January Contribution ‘Acsual reir ‘Lump sum payment VPA December 31 PBO-Janury (Current serve cost Interest expense Preseit value of defined benef obligation sethed PBO~ Devembor 31 P/A BC —December 31 (6,700,000 8,860,000)Problem 18-8 VPA - January | Contribution ‘Acta rete FVPA “December 31 PBO-Jamuary 1 Cument service cost Pas! service cost EVPA - December 31 BO December 31 Prepaidacerued benefit cost supp Asset ceiling December 31, 2020 fice af asset ceiling Current service cost Past service exst lmteretexpente an PBO (10% x $,000.000) Interest income on FVPA (1% x 600,000) lngerest expense on effect of asst ceiling (10% x 300,000) Employee benefit expense ‘Actual return Interest income ‘Remeasurement gain on plan asots Deerease in PBO ~ actuarial gain Eftict of ase ceiling ~ December 31 Effect of asset celing —Jamary 1 Total change in the effec of asst cxling lagerest expense on effect ot asset exiling (I Remeasurement loss on the fet of asset ceiling 300,000) Remeasurementauinon plan aset ‘Actuaral ain on PBO. Remeasurement loss ~ asset ceiling Netretnessurement gain Employee benefit expense 83,000 Prepaidccrued benefit cost 504,000 Cash Remeasurenent gain OCT P/ADC - Janney 1, anset citing — debit Debi adjustment ‘ABC December 31, asst elling = debitProblem 18.9 Answer D PRO January 1 Current service cost Invetest cost (10% x 7,200,000) Tota! Less: Benefits paid PRO - December 31 Problem 18:10 Answer A PBO - January 1 Current service cost (squeeze) Arcorest ost (10% x 3,000,000) Total Problem 1811 Answer A 'PBO ~ January 1 (120,000/ 8%) Current service cost (squeeze) Inverest cost m1 Pension benefits pat PRO Decenber 31 Problem 1812 Answer A BO - January 1 ‘Current service cost (squeeze) Past service cost Inzonestenst (10% x 3,500,000) ‘Actuarial loss Total ‘Benefits pane BO ~ December 31 Problem 18-13 Answer A Problem 1814 Answer A VPA —Janwary 1 Contaibution wo the fund ‘Acta retr on plan asnote Benefits paid FVPA - December 31 Problem IMIS Answer B Fair value of plan asets—Janvary 1 ‘Actual ture (squeeze) Contribution to the plan Total Benefits pa Fair value of plan assets ~ December 31 3,500,000 “400,000 500,000 350,000 200 950,000148 “The actual rum on plan assis “squoezed” by simply working back from the fur value of plan asses on December 31 The marker-welaied valoe of plan asses i ignored. Problem 18-16 Answer B FVPA~ Janary 1 Consebusion wo te hand ‘Actual rir (squeeze) Total Banefts paid FVPA~ December 31 ‘Actual run Inverewt income Remensurement loss Problem 18-17 Answer A ‘Current service cost Inorent cost finoret income Past service cost Employee benefit expense Contnbtion or suncing ‘Accrued benefit cos in curent yeor Prepaid benefit cost~ January | Net acerued benefit cs! ~ December 31 Problem 18-18 Answer B Fair value of plan assets Projected bereft obigation P/ABC erat balance Inaceordance with PAS 19, dhe defined benefit ebligation is equal othe projected benefit obligation, Problem 18:19, Question 1 = Answer © Current service cost 1.400.000 Ieret cost (10% x 7,500,000) 750,000 Inerest income (10% X 7,000,000) (701,000) Gain on plan sestoment 1an000) Emplayee benoit expense Tao Question 2~ Answer © ‘Actua reurn 184,000 Ieret income T.00 ‘Remensurement gain on plan assets 140,000 Deeraisein PBO ~ actuarial ge 202000 ‘Teal romeasarement gain iow(Question 3 Answer A, VPA January 1 othe plan Cansibat ‘Acta etm Benefits Benefits Decrease in PBO Present valve of benefit obligation sted BO December 31 Question $~ Answer B Employee benefit expense Prepuid’acerued benef cust Cash, Remeasurement gain OCI Prepsid/acerued benefit cost — J Debit agusiment Prepaid acerued benefit cost ~ December 31 Reconciliation vary T Fair value of pln onseis— January 1 Projected benefit obligation ~ Desember 31 Prepaid/acerued benefit cost eredit Problem 18:20 Question 1~ Answer A, Caren service cost Iatorest cost (9% x 10,000,000) Incerest income (9% x 9,200,000) Pension expense Question 2 Answer B ‘Acta eet Interest income Remeasuremen loss Question 3 Answer A, Prepsid/acerued benefit cost ~ January 1 (credit). Credit adjustment Balaace-~ December 31 1,380,600 190.000 1,200,000 "40,000 £500,000) 7,140,000 asco Guo 1,200,000Journal entry Employee benefit expense Remeasurement lowe Cash Prepaidaccrued benefit cost Proof Fir val of pension fund ~Jameary 1 ‘Actua er Contribution tthe fund Benefits pat Fair vale of pension fund ~ December 31 PRO- January 1 Current service cost Interest cost ‘Benefits paid PBO- December 31 Fir vale of pension fund ~ December 31 Projected benefit obligation ~ December 31 Problem 18-21 Question 1- Answer A Current service cos Interest cost (5% » 2,200,000) Intorest income (5% x 2,100,000) Past service cos fer the year Employee benefit expense Question 2- Anewer A VPA —Janaury 1 Consibation ‘Acta return (squeeze) Tot Benefits pit VPA - December 31 Question 3 Answer D PBO- January 1 Curren service cost Ingorest cost Past service cos during the year Increase in PBO = scars loss (Squeeze) Tou Benefits paid PBO- December 31 150Question 4~ Answer C ‘Acta return Interest income Remeasuremest gun on plan assets ‘Actuarial loss on PBO Netremeasurement gain Question $~ Answer C Employes best Cah Remeasurement bss sponse 150,000 PARC Sununey 1, credit No adjestment P/ABC— December 31, credit Reconciliation, FVPA ~ January | PBO— December 31 P/ABC— December 31 Problem 18-22 Question t= Answer A VPA. January 1 Contribution ‘Actual return (squeeze) Benefits paid FVPA-- December 31 Question2- Answer A PRO Jamaary 1 Curent series cost Interest eost (10% x 2,000,000) Benefits poid Actuarial ain (squeeze) PRO December 31 Question 3~ Answer C Curent series cost Interest eos (10% x 2,000,000) Interest income (10% x 2,600,000) Interest expense on effect oF asset ec Employee benoit expones 1st 10,000 205,000 21,000 129,000 (100,900) 2.400000 200.000) hanaon 2,500,000 350,000 200,000 2,000,000 100,000 200,000 (150000) 100,000 200,000 (260,000)Question = Answer D Aca ret Interest income (10% x 2600 000) Remeasurement loss on plan assets ‘Asta gin~ decree in PDO Remeasirement leon effet of ait ceiling Netrermeasurnent loss, Effet of set ceiling -Dacebor 31 Efi of asset cling — amar 1 Chang inthe eet of asset cing Interest expense cn eet of asst cilia (10% x 400,00) Remessurement hss Journal entry Employee benefit expense 50.000 Remeasurement loss ~ OCI 170,000 Prepaid/acerued benefit cost 100,000 Cas Reconciliation PYABC. January 1 asset ceiling Debit adjstment PYABC, December 31 ~ asset celing Problem 18-28 Problem 18-24 bones a>oone>ac> 152 200,000 (C0.000) 50,000 400,000 300,000 CHAPTER 21 Problem 21-1 Requirement 1 ‘9 Treasury shares ‘cash b Cash “Treasury shares Share premium, 6 Cash Retained eamings ‘Treasury shares Requirement 2 ‘Ordinary share capil Share premiam (3,000 x 4) Retained eamings ‘Treasury share Problem 21-2 Requirement 3 1. Cash ‘Share capital (20,000 « 15) Share premium, 2 Cash ‘Share capital 250,000 x 15) Share premim 2 Treaty shares Cash 4. Cash ‘Treaury shares Share premiam, Requirement 6 1 Gish ‘Share capital (200,00 x 20) 2 Cash ‘Share capital (250,000 « 20) Share prema 3. Treasury shares ‘Cash 4. Cash ‘Treasury shares Share premium £800,000 1,000,000 700,000 100.000 500,000 20,000 240,000 -4000,000 000,000 1.250,000 +4.000,000 6250.00 1,000,000, 1.250,000 168 800,000 800,000 200,000, 800,000 000,000 1,000,000 3750000 25500,000 1,000,000 1,000,000 250,000 4.000.000 000,000 1.250.000 1,000,000 1,000,000 230,000Problem 21-3, ‘Requirement a a Cah Preference share capital ‘Shae premium ~PS. b. Cah ‘Onfinary share capital ‘Slr premium ordinary share ‘&. Preferenc share 10,00 x 100) ‘Share premium ‘Cash (0,000 x 120) ‘Share premium ~ retirement 4. Treasury dares (15,000 « 32) Cash ‘© Cash (10,000 x 60) “Treasury shares (10,000 x 52) Share promium treasury share Received 20,100 ordinary shares as donation fom shareholders. Cash (10,000 x 65) ‘Denated capita 2 Profit and loss Retained earings 1. Retainad earings Retained eamings appropriated for veasury shores ‘Shareholders Equity Preference shae capil, 12% P100 par ‘Ordinary share capital, P30, 10,000 shares issued of which 3,000 shares are in treasury and 10,000 shares are doaatod ‘Share premium: ‘reference share Retirement of preference share Ondinary share ‘Treaary chore Donated capital Reained earnings ‘Unappropnated Appropriated for treasury shares ‘Treasury shares. at cost, Sharchoers’ equity Problem 21-4 Shave capital Share premium ‘Share capita 40,000 $0) Share premium - recapitalization 4.200.000 5,500,000 1,000,000 400,000 780,000 600,000 650,000 3.000.000 250,000 800,000 200,000 ‘500,000 0,000, 2,740,000 3,000,000 200,000 169 3,000,000 1.200.000 5,000,000 1,200,000 200,000 780,000 320,000 10,000 650,000 3,000,000 260.000 2,000,000 5,000,000 2.230.000 3,000,000 2,000,000 1,200,000,1b, Memo Issuat 100,000 new shares with par of P80 asa result of ‘for | split of 2,000 orginal shares with par of PISO, 6 Share capital (20,000 x 50) 1,000,000 ‘are premium - recapitalization & Share capital 3,000,000 Save premium 200,000 Retained earings 00,000 ‘Share capital (0,000 x 0) Problem 21-5 Regulrementa 1. cash 1,000,000 Ordinary share capital 2 Treasury shares 300,000 Cash 3. Memo ~ Issued 140,000 new ordinary shares with par of P25 asa result ‘ofa for I spite 70,00 orginal shares witha par of P10. 4. Cash 120,000 “Treasury shares (3,006 / 10,0901 300,000) Share premium ~ weasuryshares 5. Memo — Received 15,000 ordinary shares by way of donation Cash (10,000 x40) 400,000 Donated capital 6 Prof and lose 00.000 Retained eamings 7 Retained earings 210,000 Retained earings appropriated fr treasury shares Shareholders! Equity Proferesce share capital ‘Ordinary stare capital Shore premiums Preference share 200,000 Ordinary share 500,000 Treasury sae 30,000 Donated epi so0.900 Retsines eamines Unspproprated 2.390.000 Appropated for weasur shares —2iv.aoe “Treaty shares, ateos Sharcheldes’ uty 170 990.900 4.000.000 1.000.000 300,000 90.900 30,000 400,000 210.00 $00,000 3,300,900Problem 21-6 4. Share capital, Donated capital (5,000,000 x 10%) Donsted capital Retained earnings 1 Share cept (£0,000 » 50) ‘Share pres ‘Sha prt Retained exmings «Share capita Shore premio ‘Share capital (100.000 x $5) Retained earnings 4. Share capital Share premium ‘Shae capital (150.000 x 20) Share premiuny ~ wecaptalization ‘Share premium recapitalization Rotained earnings Problem 21-7 1. ash (4.000% 60) ‘Ordinary share capital (20,000 righte/ $= 4.000 sharee) Share premium 2 Sales price ss: Market value of warants (20,000 «1 Issue price of reference shares ash Preference share capital Share pretium ~ PS Share Warninis oustanding Cash (9.000 60) Share warrants outstanding (18,000 | 20,000 x 200,000) Ondiary stare capital Share premium ~ ordinary shares, Share warrants oustanditg ‘Shae premium ~ anexeresed warraes 3. Market value of ordinary share Less: Option pace Brees Mutiply by Val of warrants 0,000 500,000 2,500,000 500,000 5,000,000 1,000,000 5,000,000 1,000,000 500,000 240,000 2,500,000 540,000 180,000 20,000 i 500,000 500,000 2,300,000 500,000 5.500.000 ‘00,000 3,000,000 500,000 200,000 0.000 2,500,000 2,000,000 300,000 200,000 430,000 270,000 20,000 20 25.000 sharescash Preference share capital Shave pretium ~ PS Shave warrants ouetaadiog cash (25,000 x60) Shoes werrmnis outanding Ordinary share capital (25,000 x 50) ‘Shae premium ~ ordinary share Problem 21-8 2020 May31 Cash Bends payabic Prem on bonds payee Shure warans custinding Salosprice of bonds with warants Less: Market vaiue of bonds ex-warrants Tas price of warren Dee. 31 Cash (10,000 120) ‘Share warans outstanding (10,009 / 15,000 x 750,000) ‘Ordinary share capital (10,000x 100) ‘Share premium 31 Profit andoss Retained earnings 2021 July 15 Memo — Issued 60,00 rights permitting shareholders to sequire | share at P30 for every 5 rights. DDoc.31 Cash (60,000 5 = 12,000 » 130) ‘Ordinary share capital (12,000 x 100) ‘Shure premium - issuance 31 Stare wararts cutsanding Share premium ~ unexereised share warrants 31 Profitand loss Reained earnings Shareholders’ Equity ‘December 31, 2021 ‘Ordinary stare capital, P100 par Authorized ~ 200,000 shares Issued and cutsanding 72,000 shares Share premium Retaned caings Sharchoider’ ety 6.000000 1,300,000 500,000 6.000000 1.200000, 500.000 2.000000 1.560000, 250,000 3.000000 172 5,000,000 ‘00,000 500,000 1,350,000 750,000 5,000,000 250.000 750,000 600,000, 250.000 ue 1,000,000 700,000 2,000,000 1,200,000 $60,000 250,000 3,000,000 7.200.000 2310000173, Problem 21-9 Answer A Issuance (200,000 x 15) 3,000,000 Net income 750,000 {Cash dvidends (330,000) Treamury shares (12,000 x 12) (144,000) Reissue of treasury (8.000% 8) 54.000 Retirement of teasury— no effet i Problem 21-10 Answer C Per book 930,000 Troenury share: 1.000 2% (28000), 900 30 (27,000), Reissuanee of teasury (1,500. 33 48,000 Net income nse Tone Problem 21-11 Answer C Shae split docs ne fet the elements of sharchelden’ equity. Only the rumberof shares and par vale are affeted. Te this case the share situp increases the rimber of shares uti decreases the par value. Problem 21-12 Answer A ane Problem 21-13 Answer C New: par value (10% 5) 2 The reverse share spi decreases the shares to 2,090 but nereases the par Wo P30 oF a total of P100,000 fhe same capital before the split, Problem 21-14 Answer D Total orlnsry shares issued 200.000 + 100.000) 300.000 ese Treasury ortnary shares iS.00 ‘Ordinary stares oustanding Zee Problem 21-18 Answer A Issued (80,000 x 2) 190,000 Treanary (10,080 x2) 20.000 Oursaning Tomo Problem 21-16 Answer A. Issued shares (125,000 x3) 375,00 Less: Old treasury shares 12,000 balance x3) 36,000 ‘New reas shares 000 . Retained exmings (5,000 x 10) ‘Share dividends payable ‘Share dividends payable Shave capil © Retained exnings (150,000 x 10% 15) ‘Share dividends payable Share premium ‘Shae dividends pevable ‘Shae capt 4 Retained exmnings (20000 x 10) Share dividends payable Share dividends peyable Share xpits Fradional warants oustanding Fractional warans outstanding ‘Share capital (90% x 30,000) Share premium Problem 22-10 2020 Seps. 15 Retained camings (100,000 x 20% x 10) ‘Shae dividends payable (20,000 x 10) Oct 15. Share dividends payable ‘Share capital (1,000 » 10) Fractional warrants outstanding (2.000 x 10) Dec 1 Frctonsl warrants oustanding ‘Share pital (S00 x 10) Share premium 200 Sept. 15. Retained earnings (119.500 shares x 2) ‘Scrip dividends payable Now. 15 Scrip dividends payable Interest expense (239,000 x 12% x 2/12) (Cash 150,000 100,000 28000 150,000 200,000 20000 200,000 20000 239,000 239,000 130 500.00 150,000 75,000 150,000 200,900 170,900 30,000 27,000 3.900 200.900 180,000 20,000 15,000 5.000 230.000 4780 243.780Dec. 1. Retained earings (119,500 4) 478000 widends payable 31 Retained earings (1 Dividend payable 31. Dividends payable 717000 Tnvestment in Sharp Company Gaia on dstsibution of propety dividend 239000 Problem 22-1 Rewined eamings 100.000 ‘Scrip dividend payable Interest expense (10,000 x 10% x 9/12) 7500 ‘Aectuct interest payable Answer D Problem 22-12 Answer D Problem 22-13 Question 1 Answer B Question? Answer A. Qvestion3 Answer B Reained eamings 3.800.000 Cah Dividends payable Resainsd eamings (30,000 x25) 750000 ‘Shae capital (3,000 x 10) Stare premium Problem 22-14 Answer © 10% share dividend st fate value 25% share dividend at par valve Tosal amernt debited to retained caring Problem 22-15 Answer A Market value on date of dee aration (10% x 3,000 =3,000 shares x 90), Par value of share dividend (3,000 x 20) Shure press Problem 22-16 Answer A 4,000 shares /20,000 = 20% share dividend Reained eamings before share dividend ‘Les: Share dividend (4,000 100) Reeined earings afer dhre dividend 181 478000 239,000 358300 358500 100,000 7500 260000 2.700000 1,100,000 300,000 450.000Problem 22-17 Answer C Shores ised 55,000) Less: Treasury shares S000 Outsundng Bow Share dividend share om “Treasury shares ws share dividends (5,000 shares a st) 150,000 Unisaued shares as share dividen (45.000 x P25) Lis Retained earings to be capitalized Lismo Problem 22-18 Answer A. Shares tobe issued as share dividend (P2400, 000 / P60 market value) 40,000 Outstanding shares (500,000 ~ 100,000) 400,000 Percentage of stare dividend (40,000 400,000) lo Problem 22-19 Answer A Retained comings — January 1 $,000,000 Share dividend declared on Apell 1 (10% x 100000 shares x70) « 700.000) Net loss (4.200.000) Retained camings December 31 uc Problem 22.20 Answer A. Retained eamings 12312020 5,000,000 ome for 2021 1,300,000 Cash dividend 753.000) Share dividend son.000) Retained eamings ~ 1253 aoe Increase in share capital 100,000 Increase in share premium soon Share dividend soe Problem 22-21 Answer C Sharcholden’ equity before dividend Cash dividends Preference (2,100 2.100. P00 x 10%) ‘Ordinary (3.000 + 3,00 x PID) Shardoldes” The share dividends do not affect the tol amount of shareholders’ equity. Incideaally, the retained ‘arningsbalice afer the dividends is computed as follows fcr dividends Retained eamings por book 2,500,000 Share dividends. roference (2,200 ~ 100 =2,100 x PS00) ,030,000) ‘Ordinary (3.000 shares at seve price) (600,000) Cash dividends: Preferenee (200,000) Ordinary (oneaceea BCHAPTER 23 Problem 28-1 1. Retained eamings Retained earings appropriated for bond redemption 2. Bonds payable ‘cash 3. Retained earings appropriated for bond redempsion Retained earnings A Retained canings (30% x 250.000 x PLO) Share capital Problem 23-2 |. Retained camings elained exnings appropiate for plant expansion 2 Retained earings appropriated for plan expansion Retamed earnings 3. Retained earings appropriated for plan expansion Retained earings Problem 21-3 1. “Treasury shares (6,000.90) Cask 2 Cash “Treasury shares (3,000 x 90) Share prem 3. Memo ~ Isuot 47,000 rights to enable shareholders wo purchase two shar at P40 per share plus one right, 4. Cash (20,000 8 140) ‘Shar capil Share premium 5. Retained eamings (67,000 x20) Divaiends payable Shares originally issued Newly issued Toul Lea: Treasury Outstaeding 6. Shace pia 2,000 100) “Treasy shares (2,000 x 90) Share pres 2. Profit and loss Retained earnings S Rewined earnings Retained earnings appropriated for teavury shares 200,00 1,000,000 1,000,000 780,000 5,000,000 3,000,000 2,000,000 ‘s40900 360,000 2,800,000 1,340,900 200,900 $40,000 185 1.000.000 1.000.900, 750,000 5.e0000 3,000,000 270.900 90,000) 2,000,000 5005000 1.340000 50,000 Fo000 180,900 20.000 90.000‘Statement of Changes in Equity ‘Year Enided December 31, 2020 ‘Share Share Retained capital premium earnings Balances January 1 5,000,000 400000 100900 ‘Acquistion of TS (6,000 shares) Reiestance of TS (3,000 shares) 90.000 Retirement of TS (2.000 shares} (_ 200,000) 20.000 Issuance of 20,000 shares 2,000,000 00,000 Dividends declared (140,000) Net income “40,000 Agproprited for TS (90.000) Balances - December 31 com =m Coe Shareholders equity Shae capital Share premium Retained earrings ‘Unappropiated 610900 Appropristed for treasury shares 20.000 ‘Treasury shares Shareholders" equity Problem 23-4 1. Treasury shares (5,000 x 110) 550,000, Cash 2 Cash (3,000. 140) 420000 “Treasary shares (3,000 110) ‘Stare premivn 3. Retained earnings (58,000 x20) 1,160,000 ‘Dividends payable Dividends payable 1,160,000 Cash 4. Memo entry - Issued 120,000 new shares with par value of PSD as a result of 22 for I split of 60000 orgial shares with par value of PS, ‘There are 4000 shares inthe ieasury. S. Equipment 260,000 ‘are capital (4.000 x $0) ‘Stare premium 6. Profitand loss 1,730,000 Retained earnings 7. Retained earnings 220000 ‘Retained earings appropriated foe TS ‘Treasury ‘hares 540,000 270.000), (180,000) = 6.300.000 1.31000 700,000 (90.00) ‘azo 330,000 330.00 160,900 160,900 200,000 1.73000 22000‘Statement of Changes in Egulty ‘Year Ended December 31,2020 Retained earnings 1,806,000 © 330.000) 10,166,000), « 220,000), prank Ziwow $0,000 Share Share capital premium Balances — January | 6,000,900 500,000 ‘Acquisition of TS (5,000 shares) Reissuanee of TS (9,000 shares) 90.000 Dividends paid Issuance of 000 shares fr equipment 200,000 6.000 Appropeatl fer TS Balances ~ Decsmber 31 nm mw Shareholders equity Share capital, PSO par, 124,00) sbaes issued, of which 4,000 shaes are in weasary Shae premium Retained camings ‘Unapproprates Appropriated for TS Sharcholden” ity Problem 23-5 1. Gash ( 100,000. $4) Preference shae capital ‘Share premium preference “Treasury shares (10,000 x32) Cash 3. Cash 250,000. 34) ‘Ordinary shore capital (280,000 x20) Share premium = odinary 4. Retained earings (1,240,000 x2) Dividends payable Diviends payable ‘Cash 5. Cash (5,900 42) “Treasury shares (5,000 x 32) ‘Share premium — TS 6 Retained eamings (9% x 5,000,000) Dividends payable 7. Profit and loss Retained earings 8. Retained earings Retained camnings appropriated fr treasury shares $400,000 320,000 58,300,000 2,480,000 480,000 210,000 450,000 3,500,000 140,000 187 ‘Treasury 550,000 5,000,000 00,000 320,000 000,000 3,300,000 2,480,000 2,480,000 50,000 450,000 3,300,000 140,000188 ‘Statement of Changes in Eaulty ‘Year Ended December 31, 2020 Share capital Ishumce of 10000 preference shares, P50 par 5,00, (00 Acquistion of TS (10,00 shares) Retosaace of TS (000 shares Issuance of 250.000 ort shares, P20 par 5.00.00 Dividends to ordinary stare Dividends to preference share Approprated for TS — ‘Bdlinces~ December 31 mo Shareholders’ equity Preference share capital, PSO par, 9% cumulative, ‘Share Retained Treatery premium earnings shares "00,00 310.000 50,900 (150,00) 3.30000 2.480.000) Cs0000) 60000 160000 fom Low ie 400,000 shares authorized 10,000 shares ised 5,000,000 (Owinary share capita, P20 pat, 400,000 shares sathorizea 1,250,100 shares sid of which 5,000 share are in teasory 25,000,000 Reserves (Note 1) 10,110,000 Reuined earings 5,410,000 Treasury shares isni0) Tosa shareholders equity wow Note 1 Reserves Share reraium 9.950.000 Retained camings appropriated for wcasury shares lwo Tout Tuwow Problem 2346 1. Retained earings 250,000 Inventory 280,000 2. Reuines eamings 1,500,000 Property. Plantand equipment 1,500,000 3. Shae capital (350,000 x 5) 1,730.00 Share premium 1,750,000 4. Share prmiuny 220,000 Retained eamings 2,200,000 Share apt, 380,000 shares, PS par 1,780,000 Share prem aoe Total starbolders’ equity Zieooe Problem 23-7 1. Retined earings 10,000 Inventory 130.00 2. Note payable 00.600 ‘Accumulated depreciation 1.200.000 Retained earings 300,000 Equipment 2,000,000Note payable (Camying mount Loss on extinguishment of debt 2. Retwined canings ‘Goodvil 4. Mengaze payable ‘Preference share capital ‘Shae premium 5. Ordinary sare capital (50,000 » 80) Share prema 6. Share premium Retained earnings ‘Subic Company ‘Statement of Financial Position ‘December 31, 2020 Assets cash ‘Accounts recsivable Taventory Property, plan and equipment Accumuiied depreciation “eal assets [Liabilities and Shareholders’ Equity Accounts payable Preference sre capa, PI00 pur ‘Ordinary share capital, P20 par Share premium “Tal liabilities and shareholders" equity Problem 23.8 1 reference share capital Rewined camings Bonds payable 2. Reained camings Good 3. Proper, plant and equipment ‘Accumulated depreciation 25%) Revaluation surplie 4. Revaluation suplas Retained earings 1,200,000 4,200,000 4,000,000 4,430,000 1,300,000 00,000 00,000 4,000,000 2,000,000 189 500,000 1.200.000 4,000,000 200.000 4.000.000 4,450,000 200,000 300,000 350,000 7,900,000 ‘990.0001, sssoune 1,100,000 4'000.000 1.000.000, 150.000 ‘Sssoue 2,000,000 $00,000 1.000.000 3,000,000 2,000,000190 ‘Statement of Financial Position ‘December 31,2020, ases cash 425,000 Ober curent sets 1325000 Property plant and iment 12000000 Late Acumltd depreciation oma 20am Tot asets Torco Linbitites and Sharchokle' Equity current Linbties 2.000.000, Bonds pajane doom Ondiary share apt Sooo Stare premio ‘s0.0m Revaluation surplus ‘-l.oc.o0 “otal fais ard shrcholcn equity ioscom Problem 23.9 Answer A ‘The preference ividends in anears do noc nevesaily require appropriation of reained eamings Legally, retained carings must be appropriated to the extent ofthe cost of weasuy shares. Problem25-10 Answer C ‘Original cost (20,000 x 12) 241,000 Less: Cost of weasury shares relssued (15,000 x 12) Ascom Remaining ost so ‘Legally, tained camings must beupproprated t the extent ofthe cas of treasury Sock, Problem 23-11 Answer A — 1,201,00 ‘Only the ctined earings appropriated forthe eonstucion of new plant shouldbe reported The retained eamiags appropriated for the construction of office tiling stoull be reverted to urappropriatd tained eamings beause the bung is already completed. The cash restriction forthe retirement of bonds payable does nov necessarily require an appropriation of retained earings. Problem 23-12 Answer A ‘Retained earnings January 1,2020 200,000 Share dividend (57,000 5) 285000) (Cash dividend 247,000' 10) (470000) Net income $300,000 Appropriation for treasury shares (10,000 x 30) 00.000) ‘Unappropiated balance ~ 1231/2020 Ta Shares issued January 1, 2020 201,000 “Treasury shares aa.009) Outstanding shaves 790,000 Share dividend (30% x 190000) $2.00 ‘otal outstanding shares 2Problem 25-13 Answer A Retained eamings — January 1 ‘Net income Appropriate fee TS (4,000 x20) Unsppropristed retained earnings - December 31 Problem 23-14 Answer A ‘Net income - 2017, 2018 snd 2019 Dividends declared = 2018 and 2019 Retained eamings~ 1/1/2020 Net inom for 2020 (4,800,000 x 70%) Prior period adjustment (400,000 7082) ‘Cumlative decrease in income ftom change in inventory method (700,000 x 70%) Dividend declared in 2020 Retained eamings 1231/2020 Problem 23-15 Answer A. Retained camings - 1/1/2020 Prior period errr _overdepresiation (500,00 x 70%) Neticome for 2020 Cash dividead preference ‘Cash dividend ~ ordinary Retained camings 12312020 Problem 23-16 Answer B ‘To reduce the par value ofthe share api: Share capital (100,000. 25) 2,500,000 ‘Shae pretium To clminate the de ‘Share prim 2,103,000 Retained camings ‘Considering the adjustments, the share premium shuld have a balance of P1,900,000. Problem 25-17 Answer © To reduce the property, plant and equipment to apprised value: Retained camings +4000,000 Property, plant and equipment ‘To reduce the par value ofthe share Share capital (700,600 x 5) 502,000 ‘Share persion “To clminate the dei Share premium 4900,000 Relainedcarnings| 191 300,000, 6,000 a0.010 mo 6300.060 ooo ‘30000 330,000 (239,000) (490,000) (2oon.00) awe -4500.000 350.000 4.000.060 (4,000,000) Zomam ae 2500000 2,100,000 4,000,000 3500000 4.900.000192 The inventory isnot adjusted anymor: because it isalready recorded at its market value. After adjustment, the resulung balances ae: Share capital Share premium Total shareholders" equity Problem 23:18 Answer A Retained earnings 500,000 Inventory Retained earnings 1,500,000 ‘Accumulated depreciation cash 4,000,000 ‘Stare premism Share capital (160,000 « P20) 000,000 ‘Share premium Share premiom 5,000,000 Retained earnings Share premium per book Reduction of par ‘Cash contbation ftom shareholders Elimination of deficit Adjusted share premium Problem 23-19 Answer A Deficit Reduction i inventory Reduction ia PPE Writeoft of goodwill Total deficit ‘Charged against share premium Reduetion of share capa Problem 23-20 Le cash 5,000,000 ‘Share capital ‘Share premiamn(400,000 x 11.50) 2¢ ‘Stare capital (100,000 « 1) 100,000 Shae premium (100,060 x 10) 1,000,000 Retained earings "200,000 ‘Cash (100,000 » 13) 3. B- 600,000 3,500,000 200000 Towe $00,000 1,500,000 4.000,00 2,000,000 5,000,000 1.780.000 2,000,000 4,000,000 8,000,000 2,000,000 5,000,000 1.000.000, 7S.000.000 400,000 1,300,000 Suit No.1 isa possible ss and therefore requires only disclosure which may be dane by appropriation of retained earnings. Suit No. isa probable loss and therefore requires acersal o expense193 4a Jane 1S «1,800,000 shares x 2 360,000 December 15 ~ 1,700,000 shares x 20 osm Total eas dividend Zo 5. B-900,000 Legally retained earnings must be appropriated equal to the cost of treasury shares. ‘Problem 25-21 Problem 2522 Lo Le 2D 2C xe RA 4c 4c $8 5c 6D 7B ap 5B 8CHAPTER 24 Problem 24-1 Fair value of option (40,000 30) Annual compensation 1,200,000 /2) 2020 DDec.31 Salaries ~ share options ‘Stare options outstanding 2021 Dec. 31, Slaves — share options Share options oustanding 2022 Jan. 15 Cash (35,000-haresx 125) Share opsions outstanding (35,000 x 30) Orsinary share cpa (35,000 x 100) Share premiam Dec. 31 Share options oustanding (5,000 x30) ‘Stare premium ~unexercsed sock options Problem 24-2 2020. Salaries share options (450.000 2) ‘Sha options outstanding 2021 Salaries share options (400,000 — 225,000) ‘Share options outstanding 2022 Salaries shar options (30,000 5) ‘Share options outstanding Cash (30,000 x30) Share options cutstanding ‘Ordinary share capital (30,000 x 10) Share promis Problem 24-3 ‘Compensation expense fr 2020 (6,000,000 x 98%4/ 3) ‘Cumulative compensation ~ 12/31/2021 (6,000 000 x 9496 /3x 2) Les: Compensation recognized for 2020 ‘Compensation expense fer 2021 ‘Curnulative compensation - 12/31/2022 6,000 9 Less: Cumulative compensation ~12/312021 ‘Compeasation exponst fee 2022 600,000 4,375,000 os0.000 130,000 225.000 375,000 150,000 900,000 750.000 194 1.200.000 ‘0.00 600,000 3,500,000 1.925.000 130,000 225,000 375.000 130.000 300,000 1,350,000Problem 244 200 Number of employect Enpleyees who let Enplayees expected to leave Enployees entitled Meiply by share options oral share option® Multiply by fir value each option Tova fi value of share options Compensation expense fe 2020 (2.700.000 /3) zor Number of employees Enployees who left in 2020 Enployees who left i 2021 Enplayees expected to leave Enplayees er Mukiply by share options oval share options Muliply by fir value each option Tova fair Value of share options Cumulative compensation ~ December 31,2021 (2,400,000 /3 x2) Leis: Compensation recognized for 2020 ‘Compensation expense for 2021 2022 Number of employees Employees who left in 2020 Employees sho left in 2021 Employees who left in 2022 Enployees ented Muiply by share options Tova share options ‘Cumulative compensation — 12/31/2022 (49,400 x 50) ‘Less: Cumulative compensation ~ 1231/2021 Compensation expense foe 2022 Problem 24-5 200 Number of employees Multiply by share options oval share options Multiply by fi value each option “Toa fae vale o share options ‘Compensation expense fr 2020 (300,000 /3) 195196 221 ‘Average increase (8% + 10% /2) poy Number of employees 100 Mull by hare options uy Total share options ition ‘Mull by ait Valve each ofion Total fai value of share options ‘Cumalaive compensation 12/31/2021 (300,000 /3 x2) Less: Cumulative compensation ~ 1231/2020 Compensation expense for 2021 22 “Average imereae (89% + 10% + 8% /3) “Number of employees Mull by share options Total share opione Mull by fis value each option “otal fai value of share options Less: Cumulative compensation 1231/2021, ‘Compensation expense for 2022 FEcLtk=e EE= El Problem 24.6 Requirement | lve each option Total fai Value of share options Compensation expense for 2020 (480.000 /3) 21 Compensation expense for 2021 E EEL ‘There iso change inthe compensation expense because the earnings target of atleast an average of 10% Isachieved 2021, am Shae onions 10.00 Muley by fur vate cach tion Cmtative compensation 2/31/2022 4003309 Less: Cumulative compensation ~ 1231/2021 300.000 Compensation expense for 202 lo a Average increase (109% + 11% + 39% 13) ‘The caring targot of atleast an average of 10% isnot achieved in 2020, Thus the exercise price 8 ‘and te fir value ofeach share option ta PA. 20Requirement 2 2020 Salaves share opto ‘Share option: outstanding 2021. Salas - stare options ‘Share options outstanding 2022. Salaries ~ stare options ‘Share options Outstanding Cash (10,000 x 120) Share optiogs outsuinding ‘Shae capital (10,000 » 50) Share premium Problem 24-7 2020 Salaves (90000 / 3 yes) ‘Share options outstanding Share options Multiply by intrinsic value (63-60) “Total ininsie valve 2021 Salarice ‘Share options outstanding Share options Multiply by intrinsi waa (66.60 Total invisie vale Cumalave compensation —12/3172021 (180,000 /3 x2 yeas) Compensation ognized in 2026 ‘Compensation expense for 2021 2022 Savion ‘Share options oustanding Stare options Malplyby ntrinie waive (78.60) ‘Cumulative compensation - 12312022 ‘Cumlative compensation — 12312021 ‘Compensation expense for 2022 2023 Salaries ‘Share options oustanding Stare pions “Multiply by merease in intsinsi value (88-75) ‘ditional compensation Cash (10000 x 60) Share options outstanding (10,000. 28) ‘Share capital (10,000 x 50) Share premsum Intrinsic vale per option (88-60) 10,000 130,000 10,000 1,200,000 “400.000 30.000 0,000 330,000 390,000 660.900 280,000 197 150,000 150,000 100,000 500,000 1,100,000 30.000 30,000 500,000 390,000 a2024. Salrice ‘Share options oatstanding ‘Share options (80,000 — 10,000) Muliply by increase in ininse value (10088) ‘Additional compensation ash 15.010 x60) Share option cutstanding (15.000 x 40) ‘Share eapital (15,000 x 50) Shave prem Intrinsic value per option (100-60) 2028 Share options outstanding Gain on reversal of share eptions Share options (20,000 15,000) Muliply by decrease in intrinsic valve (100-90) Decrease in intinsic value Cash (500 6) ‘Share options oatstanding (5,000 30) ‘Share pital (5,000 x 50) Share premium Intrinsic value per option (90-60) Problem 24-8 Requirement 1 2020. Salaries ‘Share options oatstinding 2021 Salarice ‘Share options outstanding 2022 Salaey 1,500,000 700,000) ‘Share options outstinding Cash (29,000 x110) Share options cutsanding ‘Shae epital (£0,000 x 100) Shave pemiuns Requirement 2 20m Dec. 31 Stare options outstanding 240,000 ‘9¢0,000 60,000 0.000 300,000 150,000 300.000 400,000 00,000 2,200,000 500.000 700,000 ‘4000 198 240,000 20,000 750,000 750,000 50,000 5,000 250,000 200,000 300,000 400,000 800,000 2.000.000 1,700,000Problem 249 Requirement 1 2020 Salaries 240.000 Equity conteution fom parent (80 x 200x 30/2) 2021 Satanes 246.000 [Equity coetritution fom parent ‘Cumulative compensation ~ 12/31/2021 (81 x 200.x 30) ‘Compensation for 2020 ‘Compensation for 2021 Requirement 2 2022 Cash (16,200 6) 972,000 ‘bare capital (16200 x 50) ‘Share prem Problem 24-10 2020 Namber of employees Employecs who lft in 2020 Employees expected toleave Employess ented to stare options Mukiplyby number of share options Total bare options Multiply by fair value of share option Total compensation ‘Compensation for 2020 2.136.000 / 3) 202 Namber of employees Employees who left in 2020 Employees who lft in 2021 Employers expected toleave Employers entitled share options Muhiply by numberof share options Total sare options ‘Mulply by fair value of share opsion Total compensation Cumulative compessation - 12/34/2021 (2.124.000/3 x 2) ‘Compensation bused on mediation (35400 x 20/2 yeas) Toul ‘Compensation expense for 2020 Compensation exponse for 2021 199 240000 246000 $86,000 810,000 162000 2.000 C8) 1770 —2 3500 1.416.000 S000 T770020 Number of employees 2.000 Employees who left in 2020 (80) Employees who left in 2021 (99) Employees who left in 2022 50) Fmplayeos ented to share options 170 Mulply by numberof share eotions <0 Total share options 35600 ‘Mulupl by fai Value of share option ss Cumulative compensation ~ 12/31/2022 Tsao Compeneaton bated om modification (36,600 x 20) Se Total compensation TRek000 Compensation expense for 2020 C712.000) Compensation expense for 2021 (Losoo0 Compensation expense for 2022 ‘Lozs.coo Journal entries 2020 Salaries expense 712,000 ‘Share options outstanding 72.0 2021 Salaries expense 1,058,000 Share options outstanding 1.058.000 2022 Salaries expense 1,078,000 ‘Share options outstanding 1,078,000 Problem 2411 Answer A “Total compensation (28,000 x 15) 300.00 Compensation for 2020 (300,000/ 2) 10.00 Problem 2412 Answer D ‘Total compensation (4,000 x 20) 800,000 ‘Compensation for 2020 (800,000 2) aon Problem 24-13 Answer C Compensation expense for 2020 (200,000 x 6/3) aoe Problem 24-14 Answer C CCompeneation expense Foe 2020 (80,000 10 96% errnny Problem 2415 Answer C (000. 50) ome Problem 24-16 Answer A. Fir value of share options (100,000 8) amon f the options vest immediately, the tou fir valve ofthe share options shall be recognized immediatly fall as expense, the options are granted on January 1, 2020 and exercisable on January 1, 2020, it means thatthe share options vest immeditly,201 Problem 24-17 Answer C ($000,000 - 2,000,000 - 2,100,000) perry Problem 2418 Answer B ash payment 3,90.000 Share options outstanding (1,500,000 1.300000) (ano. ‘Compensation expense or 2020 ooo Problem2419 Answer C ‘Cummlatve compensation 2019 and 2620 (15,000 x40 x95% /3 x2) 380.000 Compensation fer 2019 13.000 x 40/3) conoea ‘Compensation expense for 2020 Janus Probiem 24.20 Answer C 2620 (20% x 40,000» 10) 0.000 2021 (30% x 40,000 x 18) 180000, 2422 (0% x 40.000 x 20) 00000 Total compensation Frenr Seaight Tne (660,000 3) 220009 Problem2421 Answer A. To record the compensation for 2020 Selaciss (10,000 x30) 300900 ‘Share options oustanding 300.000 ‘Oseve that the options vest immediately ar theres © of the share options is recognize ae expeme in fill in 2020, The effect ofthe above entry on sharhelders equity ie ofeeting To recor the exerise ofthe options on December 31, 2020: Cash (10,000 x 20) Share options outta 3004 ‘Ordinary share capital (0,000 x 10) 100.000 Shae praniams 400.000, The effect of the ahove erry on sharcholders” equity is 2 nat increase of F200,000, equal to the cash recived. Problem 2422 Queation 1 Answer A (6.000360) oan Question 2 Answer A Cash rccved (5000 120) so0000 Problem 2423 Answer C (351/802) some Problem 24.24 Answer B sono Problem2425 Answer A June 30, 2020 to December 31,2022 =2.$ years 5,400,000 / 2 = 2,160,000,Problem 2426 Answer B Compensation expense for 2020 (240,000 /? years service period) Problem 24-27 Question 1 Answer C (500,000) Question 2 Answer © (340,000) ‘Question 3 Answer D (470,000) Question 4 Answer A (2.250000) 2020 Fair value of share options (00 x 100 x 30) Compensation expens fox 2020 (1,500,000 3) m2 umber of employees Employees wh lft in 203 nmplayees expected to lave Employees ented to share options Fair value of share options (440 x 100 x30) ‘Cumlanve compensation on 12/31/2021 (1,320,060 /3 x2) Compensation expense recogsinedin2020 Compensation expense in 2021 202 Numberaf employees Employees who len 2021 Employees who lef in 2022 Employees entsled to share options Fair value of share options 12'31:2022 (50x 100 x30) Cumulative compensation 1231/2021 Compensation expense in 2022 Exercise price (45,000 shares x 120) Fair value of options 1231/2022 Total considernion Par value (48,090 x 100) Share premium from exercise Problem 24-28 Question 1 Answer Question 2 Answer C Question 3 Answer © Question 4 Answer A 202203 2020 Fas yalacof share options 6,000 30) anne ‘Compensation expense for 2026 (900,000 3) ange ‘The fair valu of share option is P3D because the sales increased by 11% in 2020. 208 Fair value of share options 30,000 30) pry ‘Cumulative compensation 12/3/2021 (900,000 /3 x2) 600.000 ‘Compensation expense for 2020, conan) ‘Compensstion expense for 2021 saa ‘The fair value ofthe share option sail PRO bestuse the sales increased by 12% in 2022 or an average of 11 St fortwo years 2022 Fair valu of share options 12/31/2022 (30,000 x 25) 750,000 Cumulative compensation 1232021 «co0.000 ‘Compensation expense for 2022 ‘Ls000 ‘Ths fue value of hare option is only P2S because the sles increased by 4% in 2022 or an average of 9% ‘only for 3 yeas (11% plus 12% les 4 divided 3 cauals 9%). Excreise price (30,000 shares x 100) 3.000.000 Farr value of options 12/31/2022 —is0000 ‘oval consideration 3730000 Par value (30,000 x $0) Lso0.000 Share pretium upon exercise oom Problem 24.29 Answer D 2020 1 value of shae options (300 x 200 x P30) Lacoous ‘Compensation expense for 2020 (1,800,000 /3) soneos The sales increased by 10% in 2020 an therefore, cach employee is ented to 200 share options 200 Fair value of share options (200 x 300 x 30) amn00 Cumulative compensation 12/31/2021 (2,700,000/ 3x2) 1,800,000 ‘Compencation pence fe 2020 son. ‘Compensation expense fr 2021 ooo Each employe is entitled to 300 share options because the sales increased by 15% in 2021, 2022 Number of employees 300 Enmpleyees oho lem 2022 co» Fnplevees entitle to she options a Fale value of share options (250 x 300 x P30) 2.250000 ‘Comulative compensation 12/3/21 L000) ‘Compensation expense in 2022 50000 Each employee is entitle to 300 share options because the sales increased by 15% in 2022.‘Question? Answer A Exercise pice (73,00 shares x 40) 6,000,900 Faisal of share options 1231/2022, 2 Ton considertion 250.000 Parva (75,000 50) 3.130.000 Share premium si0.000 Problem 24-30 ‘Question 1 Answer D ‘The Intense value method is followed ifthe fat value ofthe share options cannot be measured reilly ‘The intrinsle value is equal (othe excess ofthe market price ofthe share over the option price. 2000 Market price @ ‘Opzion prise @ Intrinsic value per share option 2 Iatinsic value of share options (60,000 x 2) spooeo Compensation expense for 2020 (120,000 /3) 40.000 ‘The ininsic value of share options is recognized as expense over the vesting period, not over the life oF share cptons. 200 Intrinsic value of share options (66 ~ 6~ 6x 60,000) Beenny Cumulative compensation 12/31/2021 (360,000 /3 x2) 240,900 ‘Compensation expense for 2020

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