SHAREHOLDERS’ EQUITY

ISSUANCE
1 Journalize the following transactions incurred by ABC Company during the year
Jan 1 - Issued 1,000 ordinary shares with stated value of P100 per share for the price of P120.
July 1 – Issued 1,000 ordinary shares with stated value of P100 for land with a fair value of P150,000 when the
price of the shares was P110. Share issuance cost of P1,000 was incurred in connection with this transaction.

2 On March 1, 2012, Abeyance Company issued 10,000 ordinary shares with P200 par value and 20,000
convertible preference shares with P2 par value for a total of P8,000,000. On this date, the ordinary
share is selling at P360 and the preference share is selling at P270. What amount of the proceeds
should be allocated to the convertible preference shares?
A 6,000,000
B 5,400,000
C 4,800,000
D 4,400,000

PREFERENCE SHARES
3 Pastorfide Company issued 1,000, P100 par convertible preference shares for P120.
A If each preference share was converted to an ordinary share with a par value of P50, journalize.
B If each preference share was converted to an ordinary share with a par value of P200, journalize.

4 During 2012, Abysmal Company issued 50,000 convertible preference shares with P100 par value for
P110 per share. One preference share can be converted into three ordinary shares with P25 par value
at the option of the preference shareholder. On December 31, 2012. when the market value of the
ordinary share was P40 per share, all of the preference shares were converted. What amount should
be credited respectively to ordinary share capital and share premium as a result of the conversion?
A 3,750,000 and 1,750,000
E 3,750,000 and 2,250,000
F 5,000,000 and 500,000
G 6,000,000 and 0

5 A company issued 1,000 shares of P100 redeemable preference share. Dividends of P10,000 were
declared on these preference shares.
A Financial statement presentation of the shares
B Effect of preference share dividends

TREASURY SHARES
6 ABC Company has the following equity balances at the beginning of the year:
Share Capital (1,000 shares at P100) P100,000
Share Premium-Ordinary P10,000
Share Premium-Treasury Share P3,000
Retained Earnings P200,000
During the year, the company repurchased 100 shares for P15,000. Journalize:
A If the treasury shares were reissued at P200
B If the treasury shares were reissued P50
C If the treasury shares were retired

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EARNINGS PER SHARE
1) X Company has income of P200,000 and outstanding
ordinary shares of 40,000 shares throughout the
year.
a) Calculate EPS
b) What are the uses of EPS?
c) Which companies are required to present EPS?

PREFERENCE DIVIDENDS
2) X Company has income of P200,000 and outstanding
ordinary shares of 40,000 shares throughout the
year. It has outstanding preference share capital of
P400,000 comprising 40,000 shares at P10 each.
a If the preference shares are non-cumulative and no preference dividends are declared, determine EPS.
b If the preference shares are non-cumulative and a 10% dividend is declared on preference shares, determine
EPS
c If the preference shares are cumulative and no preference shares are declared, determine EPS.
d If the preferences shares are cumulative and no preference shares are declared for two years, determine EPS.

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING .

3) In 2014, X Company has net income of P200,000. In
the beginning of 2014, X has 40,000 ordinary shares.
On October 1, 2014, an additional 20,000 shares
were issued.
a Determine WAOSO
b Determine EPS

4) On its first year, X Company has the following

ordinary share transactions
January 1 Issued 30,000 shares
March 1 Split the share 2-for-l
April 1 Issued 10,000 shares
July 1 Distributed a 20 percent bonus issue
Determine Weighted Average Ordinary Shares

5) Obscene Company had the following capital during

2012 and 2013:
Preference share capital, P100 par, 10% cumulative, 30,000 shares 3,000,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
The entity reported net income of P4,000,000 for the year ended December 31, 2013. There are no preference
dividends in arrears on December 31, 2011. The entity paid no preference dividends during 2012 and paid
P600,000 in preference dividends during 2013. In the 2013 income statement, what amount should be reported as
basic earnings per share?
a. 74 b. 80 c. 70 d. Some other amount

6) Omnipotent Company had 100,000 ordinary shares

issued and outstanding at January 1. During the
current year, the entity also had the ordinary share
transactions listed below.
April 1 Issued 30,000 previously unissued shares
May 1 Split the share 2-for-1
June 30 Purchased 10,000 shares for the treasury
July 30 Distributed a 20 percent bonus issue
December 31 Split the stock 3-for-1

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What is the weighted average number of shares for EPS purposes?
a 288,000
d) 864,000
e) 882,000
f) 972,000

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SHARE BASED PAYMENTS
Case 1: EQUITY

At the beginning of year 1, Entity A grants share options to each of its 100 employees working in the sales
department. The share options will vest at the end of year 3, provided that the employees remain in the entity's
employ, and provided that the volume of sales of a particular product increases by at least an average of 5 percent
per year. If the volume of sales of the product increases by an average of between 5 percent and 10 percent per
year, each employee will receive 100 share options. If the volume of sales increases by an average of between 11
percent and 15 percent each year, each employee will receive 200 share options. If the volume of sales increases
by an average of 16 percent or more, each employee will receive 300 share options.

On grant date, Entity A estimates that the share options have a fair value of P20 per option. Entity A also estimates
that the volume of sales of the product will increase by an average of between 11 percent and 15 percent, per year,
and therefore expects that, for each employee who remains in service until the end of year 3, 200 share options
will vest. The entity also estimates, on the basis of a weighted average probability, that 20 percent of employees
will leave before the end of year 3.

By the end of year 1, seven employees have left and the entity still expects that a total of 20 employees will leave
by the end of year 3. Hence, the entity expects that 80 employees will remain in service for the three-year period.
Product sales have increased by 12 percent and the entity expects this rate of increase to continue over the next 2
years.

By the end of year 2, a further five employees have left, bringing the total to 12 to date. The entity now expects
only three more employees will leave during year 3, and therefore expects a total of 85 employees will remain at
the end of year 3. Product sales have increased by 20 percent, resulting in an average of 16 percent over the two
years to date. The entity now expects that sales will average 16 percent or more over the three-year period, and
hence expects each sales employee to receive 300 share options at the end of year 3.

By the end of year 3, a further two employees have left. Hence, 14 employees have left during the three-year
period, and 86 employees remain. The entity's sales have increased by an average of 16 percent over the three
years.

REQUIRED:

Compute the amounts of compensation expense and liability that the entity should report

Case 2: CASH

An entity grants 100 cash share appreciation rights (SARs) to each of its 500 employees, on condition that the
employees remain in its employ for the next three years.

During year 1, 35 employees have left. The entity estimates that a further 60 will leave during years 2 and 3.
During year 2, 40 employees have left and the entity estimates that a further 25 will leave during year 3. During
year 3, 22 employees have left. At the end of year 3, 150 employees exercised their SARs, another 140 employees
exercised their SARs at the end of year4 and the remaining 113 employees exercised their SARs at the end of
year 5.

The entity estimates the fair value of the SARs at the end of each year in which a liability exists as shown below. At
the end of year 3, all SARs held by the remaining employees vested. The intrinsic values of the SARs at the date of
exercise (which equal the cash paid out) at the end of years 3, 4 and 5 are also shown below.

Year Fair Value Intrinsic Value

1 P14.40

2 15.50

3 18.20 P15.00

4 21.40 20.00

5 25.00

REQUIRED:

Compute the amounts of compensation expense and liability that the entity should report in years 1 to 5.

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 Case 3: HYBRID

An entity grants to an employee the right to choose either 1,000 phantom shares (i.e., a right to a cash payment
equal to the value of 1,000 shares) or 1,200 shares with a par value of P10 per share. The grant is conditional
upon the completion of three years' service. If the employee chooses the share alternative, the shares must be held
for three years after vesting date.

At grant date, the entity's share price is P50 per share. At the end of years 1, 2 and 3, the share price is P52, P55
and P60 respectively. The entity does not expect to pay dividends in the next three years. After taking into account
the effects of the post-vesting transfer restrictions, the entity estimates that the grant date fair value of the share
alternative is P48 per share.

At the end of year 3, the employee chooses:

Scenario 1: The cash alternative

Scenario 2: The equity alternative

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