Activity2-Answer Key1

A.
VYRR Construction and Development Corporation is a medium-sized, closely-held entity based in

Cagayan De Oro City. A group of Taiwanese investors would like to acquire shares of the corporation
because of its tremendous earnings potential. After much internal discussions initiated by its chairman,
Virginia Yacapin, and its president, Ruth Russell, the investors were allowed to make investments. One
of the considerations given was a tract of land in Davao city with the fair value of P10, 000, 000.
The entry to record the issue of 9,000 shares of P1, 000 par ordinary shares in exchange for the land is:
Land 10,000,000
Ordinary shares 9,000,000
Share premium 1,000,000
B. Dynasty BookSource Asia, Inc. engaged the services of a promoter during its formation and
organization. The corporation issued 800 shares of P100 par value ordinary shares for the services. The
fair market value of such services is P100, 000.
The entry will be:
Organization Expenses 100,000

Ordinary shares 80,000
Share premium 20,000
C. On Jan.1, 2017, Rey Rabago Freight, Inc. granted 100 share options to each its directors on the
condition that they remain with the entity for the next three year.
Grant date? Jan. 1,2017
Vesting period? 3 years
Vesting condition?
Vesting date? December 31,2019
Exercise date? Jan. 1 2020 -
D. On January 1, 2019, share options are granted to employees to purchase 100,000 ordinary shares of
P50 par value at P60 per share. On this date, the fair value of each share option is P20.
The options are exercisable immediately. The employees exercised all their share options on December
31, 2019.
Entry on January 1, 2019:
100,000 shares x P20 = P2,000,000
Salaries Expense –share option 2,000,000

Share options outstanding 2,000,000
Entry on December 31, 2019:

Cash 6,000,000
E. Imara Andam Farms, Inc. granted 100 share options to each of its 1,000 employees on Jan. 1, 2017.
The grant is conditional upon the employee’s remaining in the entity for the next three years. The fair
value of each share option at Jan.1, 2017, the grant date, is P30. The 1,000 employees are expected to
remain with the entity for the next three years.
If the entity’s expectation that the 1,000 employees will remain with the entity for the next three years
does not change for the whole period, the total expense will be recognized in profit or loss over the
three year’s vesting period as follows:
Entry would be:
Dec. 31,2017
Salaries Expense (3,000,000 x 1/3) 1,000,000
Dec. 31,2018
Salaries Expense (3,000,000 x 2/3=2,000,000-1,000,000) 1,000,000
Dec.31,2019
Salaries Expense (3,000,000-2,000,000) 1,000,000
The share options can be exercised starting Jan. 1, 2020 and expire at the end of the year. The P100 par
value shares can acquired at P120. All options are exercised on Dec. 31, 2020.
Entry would be:

Cash (100,000 x P120) 12,000,000
Shares options outstanding 3,000,000
Ordinary Shares (100,000 x P100 par value) 10,000,000
F. Assume that during 2017, 100 employees actually left the entity. At Dec. 31, 2017, the entity
estimates that another 90 of its employees will leave during the next two years to Dec. 31, 2019. During
2018, 80 employees actually left the entity. At Dec. 31, 2018, the entity estimates that another 40
employees would leave during the year to Dec. 31, 2019. During 2019, 25 employees actually left the
entity.
Entries:
Dec. 31,2017 (100 share options x 1,000 employees x P30 x 80% x 1/3= P810,000
Salaries Expense 810,000

Share options outstanding 810,000
Dec. 31, 2018 ( P3,000,000 x 78% = P2,340,000 x 2/3= 1,560,000 – 810,000 = P750,000)

Dec. 31, 2019 (P3,000,000 x 79.50% = P2,385,000 -1,560,000 = P825,000)

The share options can be exercised starting Jan. 1, 2020 and expire at the end of the year. The P100 par
value shares can acquired at P120. All options are exercised on Dec. 31, 2020.
Entry would be:

Cash (79,500 share options x P120) 9,540,000
Shares options outstanding 2,385,000
Ordinary Shares (79,500 x P100 par value) 7,950,000
G. On January 1, 2019, an entity granted share options to each of the 300 employees working in the
sales department.
The share options vest at the end of a three-year period provided that the employees remain in the
entity’s employ and provided the volume of sales will increase by an average of 10% per year.
The fair value of each share option on grant date is P20.
If the sales increase by an average of 10%, each employee will receive 200 share options.
If the sales increase by an average of 15% per year, each employee will receive 300 share options.
During 2019, the sales increased by 10% and the entity expects this rate of increase to continue in the
next two years.
During 2020, the sales increased by 20% resulting in an average 15% for the two years to date (10% plus
20% divided 2 equals 15%)
During 2021, the sales increased by an average of 16% over three years.
By the end of 2021, 20 employees left the entity.
Entries:
Dec. 31, 2019 (300 employees x 200 share option x P20 = P1,200,000 x 1/3=P400,000)

Dec. 31, 2020 (300 employees x 300 share options x P20 = P1,800,000 x 2/3 = P1,200,000 –
P400,000=P800,000)

Dec. 31, 2021 (300-20=280 x 300 = 84,000 share options x P20=P1,680,000 – P1,200,000= P480,000)

H. On January 1, 2019, an entity granted 10,000 shares options to employees. The share options vest on
December 31,2020 provided the employees remain in service until then.
The fair value of the share option cannot be estimated reliably. The par value per ordinary share is P100.
The option price is P125 and the market value of the ordinary share is also P125 at the date of grant.
All share options vested on December 31,2020 and no employees left the entity.
The share options can be exercised starting January 1, 2021 and expire two years after. All share options
are exercised on December 31, 2021.
The share market prices are P150 on December 31,2019, P180 on December 31, 2020 and P200 on
December 31,2021
Entries:
December 31, 2019 (P150-P125=P25x 10,000 share options = P250,000 x ½=P125,000)

December 31, 2020 (P180-P125=P55x 10,000 share options =P 550,000 – P125,000=P425,000)

December 31, 2021

Cash (10,000 share options x P125) 1,250,000

Share option outstanding 750,000
Ordinary shares (10,000 shares x P 100 ) 1,000,000
I. An entity granted a share appreciation right to the general manager on January 1, 2019.
After a four-year service period, the employee is entitled to receive cash equal to the appreciation in
share price over the market value on January 1, 2019.
Thus, the market value on January 1, 2019 is the predetermined price for purposes of determining the
compensation.
The share appreciation right had the following terms:
a. Service period – January 1, 2019 to December 31, 2022

b. Number of shares- 20,000 shares
c. Exercise date – January 1, 2023
The quoted prices of the entity’s share are:
January 1, 2019 200

December 31,2019 210
Entries:
December 31,2019
Salaries Payable 50,000
December 31,2020
December 31,2021
December 31,2022
January 1, 2023
Salaries Payable 1,000,000
Cash 1,000,000
J. Suppose that the market value of the share unfortunately drops to P200 on December 31,2022.
Entry:
Gain on share appreciation right 600,000
K. On January 1, 2019, an entity granted to an employee the right to choose either:
a. Share alternative –equal to 12,000 shares

b. Cash alternative – cash payment equal to market value of 10,000 phantom shares
The grant is conditional upon the completion of three years of service.
If the employee chooses the share alternative, the shares must be held for three years after vesting
date.
The par value of the share is P25 and at grant date on January 1,2019, the share price is P51.
The share prices for the three-year vesting period are P54 on December 31, 2019, P60 on December 31,
2020 and P65 on December 31, 2021.
After taking into account the effects of post-vesting restrictions, the entity has estimated that the fair
value of the share alternative is P48 per share.
Entries:
Jan.1,2019
Fair value of the compound instrument 12,000 shares x P48= P576,000
Fair value of the financial liability 10,000 shares x P51= 510,000
Equity instrument 66,000
Dec. 31, 2019


Dec. 31, 2020

Dec. 31, 2021


If the employee has chosen the cash alternative, the journal entry on December 31, 2021 is:
Entry:
Cash 650,000
If the employee has chosen the equity alternative, the journal entry on December 31, 2021 is:
Entry:
Ordinary shares 300,000
L. On January 1, 2019, an entity purchased an equipment for the cash price of P5, 000, 000. The supplier
can choose how the purchase is to be settled.
The choices are 50,000 shares with par value of P50 in one year’s time, or cash payment equal to the
market value of 40,000 phantom shares on December 31, 2019
At grant date on January 1, 2019, the market price of each share is P110.
Equipment 5,000,000
Accounts Payable 4,400,000
Shares option outstanding 600,000
If the supplier chooses cash alternative and the market price is P130 on December 31,2019,

Interest Expense 800,000
Cash 5,200,000

If the supplier chooses equity alternative,


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A.

VYRR Construction and Development Corporation is a medium-sized, closely-held entity based in

The entry will be:

Organization Expenses 100,000

Grant date? Jan. 1,2017

Vesting period? 3 years

Vesting date? December 31,2019

Exercise date? Jan. 1 2020 -

Entry on January 1, 2019:

100,000 shares x P20 = P2,000,000

Salaries Expense –share option 2,000,000

Entry on December 31, 2019:

Entry would be:

Entry would be:

Salaries Expense 810,000

Salaries Expense 750,000

Dec. 31, 2019 (P3,000,000 x 79.50% = P2,385,000 -1,560,000 = P825,000)

Salaries Expense 825,000

Entry would be:

The fair value of each share option on grant date is P20.

By the end of 2021, 20 employees left the entity.

Salaries Expense 400,000

Salaries Expense 800,000

Salaries Expense 480,000

December 31, 2019 (P150-P125=P25x 10,000 share options = P250,000 x ½=P125,000)

Salaries Expense 125,000

December 31, 2020 (P180-P125=P55x 10,000 share options =P 550,000 – P125,000=P425,000)

Salaries Expense 425,000

December 31, 2021

Salaries Expense 200,000

Cash (10,000 share options x P125) 1,250,000

The share appreciation right had the following terms:

a. Service period – January 1, 2019 to December 31, 2022

The quoted prices of the entity’s share are:

January 1, 2019 200

K. On January 1, 2019, an entity granted to an employee the right to choose either:

a. Share alternative –equal to 12,000 shares

The grant is conditional upon the completion of three years of service.

Dec. 31, 2019

Salaries Expense 22,000

Salaries Expense 180,000

Dec. 31, 2020

Salaries Expense 22,000

Dec. 31, 2021

Salaries Expense 22,000

Salaries Expense 250,000

Accounts Payable 4,400,000

Share option outstanding 600,000

If the supplier chooses equity alternative,

Accounts Payable 4,400,000

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