MODULE # 16

PRACTICAL ACCOUNTING 1 – REVIEW

SHARE-BASED PAYMENT
PROF. U.C. VALLADOLID

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. In connection with a share option plan for the benefit of key employees, Josh Company intends
to distribute treasury shares when the option are exercise. These shares were bought in 2019
at 42 per share. On January 1, 2020, Josh granted share options of 100,000 shares at an
option price of 38 per share as additional compensation for services to be rendered over the
next three years. The options are exercisable during a two year period beginning January 1,
2023, by grantee still employed by Josh. Market price of Josh’s share was 47 at the grant date.
The fair value of the option is 12 on grant date. No share options were terminated during 2020.
In Josh’s 2020 income statement, what amount should be reported as compensation expense
pertaining to the options?
a. 600,000
b. 400,000
c. 300,000
d. 450,000

2. On January 1, 2018, Jerome Company granted 60,000 share options to employees. The share
options will vest at the end of three years provided the employees remain in service until then.
The option price is 60 and the par value is 50. At the date of grant the company concluded that
the fair value of the share options cannot be measured reliably. The share options can be
exercise within one year after the vesting period.

The share prices are 62 on December 31, 2018, 66 on December 31, 2019, 75 on December
31, 2020 and 85 on December 31, 2021. All share options were exercise on December 31,
2021.

What is the compensation expense for the year 2018?

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

What is the compensation expense for the year 2019?

a. 900,000
b. 600,000
c. 660,000
d. 200,000

What is the compensation expense for the year 2020?

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

What is the compensation expense for the year 2021?

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

3. On January 1, 2018, Jerome Company granted 100 share options each, to 500 employees,
conditional upon the employee’s remaining in the company during the vesting period. The
share options vest at the end of the three-year period. On grant date, each share option has a
fair value of 30. The par value is 100 and the option price is 120.

On December 31, 2019, 30 employees have left and it is expected that on the basis of weighted
average probability, a further 30 employees will leave before the end of the three year period.
On December 31, 2020, only 20 employees actually left and all the share options are exercise
on that date.

How much is the compensation expense that should be recognized for the year 2018?
a. 500,000
b. 880,000
c. 380,000
d. 470,000

How much is the compensation expense that should be recognized for the year 2019?
a. 500,000
b. 880,000
c. 380,000
d. 470,000

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

4. On January 1, 2020, Kimberly Company granted Angel, its president, 20,000 stock appreciation
rights for past services. These rights are exercisable immediately and expire on January 1,
2022. On exercise, Angel is entitled to receive cash for the excess of the stock’s market price
on the exercise date over the market price on the grant date. Angel did not exercise any of the
rights during 2020. The market price of Kimberly’s stock was P30 on January 1, 2020 and P45
on December 31, 2020. As a result of the stock appreciation rights,

Kimberly should recognize compensation expense for 2020 of

a. 0
b. 100,000
c. 300,000
d. 600,000
5. Angel Company granted 25,000 share appreciation rights which entitled key employees
to receive cash equal to the difference between P15 and the market price of each share
on the date of each right is exercised. The service period is for three years, and the right
are exercisable in fourth year. The market price of the share is P20 and P23 at the end
of first and second year, respectively.

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

6. Kaila Company granted 202 share appreciation rights to each of the 1,200 employees in
January 2020. The entity estimated that 90% of the awards will vest on December 31,
2020. The fair value of each right on December 31, 2020 is P22. Service period is 3
years.

What is the accrued liability on December 31, 2020?

a. 4,799,520
b. 4,000,000
c. 1,200,000
d. 1, 599,840
Answer: D 12,000

Answer: D 30,000
Note: Magkaiba ang vesting/service period and exercise period
Answer: 1. 28,000

*Walang vesting period

Answer: 2. 20,000
Answer: D Compensation expense of 3,740,000
Answer: A 160,000