Morgan Corporation had two issues of securities outstanding: ordinary shares and an 8% convertible

bond issue in the face amount of P16,000,000. Interest payment dates of the bond issue are June
30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to
receive forty shares of P20 par value ordinary shares in exchange for each P1,000 bond. On June 30,
2015, the holders of P2,400,000 face value bonds exercised the conversion privilege. The market
price of the bonds on that date was P1,100 per bond and the market price of the shares was P35.
The total unamortized bond discount at the date of conversion was P1,000,000. What amount should
Morgan credit to the account "share premium-ordinary," as a result of this conversion? P330,000..

What amount of compensation expense should Korsak recognize for the year ended December 31,
2015? P30,000

On January 1, 2014, Korsak, Inc. established a share appreciation rights plan for its executives. It
entitled them to receive cash at any time during the next four years for the difference between the
market price of its ordinary shares and a pre-established price of P20 on 60,000 SARs. Current
market prices of the shares are as follows:

January 1, 2014 P35 per share

December 31, 2014 38 per share

December 31, 2015 30 per share

December 31, 2016 33 per share

Compensation expense relating to the plan is to be recorded over a four-year period beginning
January 1, 2014.

What amount of compensation expense should Korsak recognize for the year ended December 31,
2014?

P270,000

In accounting for share-appreciation rights plans, compensation expense is generally Not

recognized because no excess of market price over the option price exists at the date of grant.

The intrinsic value of a share option is the difference between the market price of the shares and the
exercise price of the options at the grant date. True

A company should allocate the proceeds from the sale of debt with detachable share warrants
between the two securities based on their fair values. True

On January 2, 2014, LexxMark Co. issues 2,000 convertible preference shares that have a par value of
P20 per share. The shares were issued at a price of P400 per share. On December 31, 2016,
LexxMark Co. repurchases the convertible preference shares for P820,000. On this date, LexxMark
will record A debit to Retained Earnings P20,000.

On January 1, 2014, Ritter Company granted share options to officers and key employees for the
purchase of 10,000 ordinary shares of the company's P1 par at P20 per share as additional
compensation for services to be rendered over the next three years. The options are exercisable

This study source was downloaded by 100000788329023 from CourseHero.com on 04-11-2022 20:04:47 GMT -05:00

https://www.coursehero.com/file/44365487/ACTG312-Quiz-09docx/
 during a five-year period beginning January 1, 2017 by grantees still employed by Ritter. The Black-
Scholes option pricing model determines total compensation expense to be P90,000. The market
price of ordinary shares was P26 per share at the date of grant. The journal entry to record the
compensation expense related to these options for 2014 would include a credit to the Share
Premium-Share Options account for P30,000.

The distribution of share rights to existing ordinary shareholders will increase share premium at the

Date of Exercise of the Rights only

The conversion of preference shares into ordinary shares requires that any excess of the par value of
the ordinary shares issued over the carrying amount of the preference shares being converted
should be treated as a direct reduction of retained earnings.

This study source was downloaded by 100000788329023 from CourseHero.com on 04-11-2022 20:04:47 GMT -05:00

https://www.coursehero.com/file/44365487/ACTG312-Quiz-09docx/
Powered by TCPDF (www.tcpdf.org)