AUDIT OF STOCKHOLDERS’ EQUITY

AP-100Q: Problem 1
A partial list of the accounts and ending account balances taken from the post-closing trial balance of
Odette Corporation on December 31, 2020 is shown below:
Accumulated profits - unappropriated P1,450,000
Bonds payable 1,000,000
Ordinary shares subscribed 550,000
Long-term investment in shares 2,100,000
Share premium on ordinary shares 1,660,000
Premium on bonds payable 30,000
Ordinary shares 1,400,000
Preference shares subscribed 450,000
Share premium on preference shares 812,000
Preference shares 1,300,000
Share premium from treasury stock transactions 240,000
Additional paid-in capital - bond conversion option 90,000
Accumulated unrealized holding gain on financial asset at fair value 310,000
through other comprehensive income/losses
Accumulated Revaluation surplus/reserves, credit 900,000
Accumulated remeasurement loss on accumulated benefits obligation and
plan assets 320,000
Accumulated foreign exchange translation reserves, debit 260,000
Accumulated hedging gains through other comprehensive
income/losses 220,000
Ordinary share options outstanding 150,000
Ordinary share warrants outstanding 120,000
Subscription receivable from ordinary shares – noncurrent 210,000
Subscription receivable from preference shares – current 190,000
Treasury shares, 12,000 ordinary shares at cost 240,000
Long term fund – appropriated for contingencies 400,000
Accumulated profits – appropriated for plant expansion 500,000
Share dividends payable – Ordinary shares (12,000 shares) 120,000

Further investigation revealed the following information:

a. Ordinary share has no par value but with a stated value of P10 per share. 500,000 shares are
authorized, 140,000 shares are issued, 55,000 shares have been subscribed at price of P28
per share.

b. Preference shares (P50 par value) 200,000 shares are authorized, 26,000 shares are issued
and outstanding, 9,000 shares have been subscribed at a price of P70 per share. Each share
is cumulative convertible into five ordinary shares, and pays a 7% annual dividend. Dividends
are not in arrears.

c. Appropriation for treasury is yet to be made by the company at year-end.

Required: Determine the adjusted balance of the following as of December 31, 2020:
1. Total additional paid-in capital?
a. 2,982,000 c. 3,072,000
b. 3,192,000 d. 2,802,000
2. Total contributed capital?
a. 6,892,000 c. 6,592,000
b. 6,682,000 d. 6,592,000
3. Total stockholders’ equity?
a. 9,242,000 c. 9,452,000
b. 9,482,000 d. 9,252,000
4. Total legal capital from ordinary shares?
a. 2,070,000 c. 3,180,000
b. 1,950,000 d. 3,730,000
5. Total legal capital from preference shares?
a. 1,750,000 c. 1,300,000
b. 2,562,000 d. 2,112,000

AP-100Q: Problem 2
You were assigned to audit the shareholders’ equity of Freya Corp. for the year ended December 31,
2020. Freya Corp. was incorporated in early 2019 when it was authorized by SEC to issue 100,000
ordinary shares (P100 par) and 50,000 preference shares (P50 par). The following schedule reflects
the company’s capital balances as of December 31, 2019:
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 Ordinary shares, 50,000 shares issued during the company’s P7,500,000 incorporation at
P150 per share.
Preference shares, 20,000 shares issued in June 30, 2019 in exchange of 1,200,000 a
building with a fair market value of P1,200,000.
Retained earnings, which is the company’s net income in 2019 5,540,000

Total shareholders’ equity P14,240,000

Your inquiries and investigation revealed the following transactions which occurred in 2020:
a. On January 5, the company issued 10,000 ordinary shares to employees as compensation. The
shares are currently selling on this date at P165 per share.

b. On March 10, the company issued 15,000 ordinary shares and 20,000 preference shares for a
total lump sum of P4,000,000. On this date, ordinary shares are quoted in the market at P150
per share while preference shares are quoted at P75 per share.

c. On May 1, the company issued 13,000 ordinary shares with a 3 year- P3,000,000, 12% face
value bonds for a total consideration of P5,000,000. The bonds which pay semi-annual
interest every January 1 and July 1, are currently quoted at 95 (excluding accrued interest)
while the ordinary shares are quoted in the market at P155 per share.

d. On August 1, 15,000 preference shares were subscribed by several subscribers at P80 per
share. 25% of the subscriptions were collected up front with the balance to be paid after 3
months.

e. On October 31, receivables for the 10,000 shares subscribed on August 1 were fully collected,
thus the corresponding shares were issued. The subscribers of the remaining shares defaulted,
as a result, the company offered the remaining shares in an auction. The company advanced
P15,000 in auction related expenses.

f. On November 25, the company selected the highest bidder, thus the amount due was
collected. The remaining shares were issued.
g. An outstanding loans payable amounting to P1,000,0000, with an accrued interest at
P120,000 was settled by issuing 8,000 ordinary shares. Settlement of the liability by issuance
of shares is not according to the normal or original credit terms. The creditor agreed to the
concession as part of a debt restructuring agreement with the company. Ordinary shares were
currently selling on this date at P160 per share.

h. The company registered an adjusted net income in 2020 at P4,530,000.

Based on the information above, determine the adjusted balance of the following as of Dec. 31, 2020:
6. Ordinary Shares
a. 9,600,000 c. 9,500,000
b. 9,400,000 d. 9,200,000
7. Preference Shares
a. 2,750,000 c. 2,500,000
b. 2,700,000 d. 2,000,000
8. Share premium in excess of par – Ordinary Shares
a. 5,280,000 c. 5,260,000
b. 5,210,000 d. 5,380,000
9. Share premium in excess of par – Preference Shares
a. 1,250,000 c. 1,200,000
b. 1,000,000 d. 1,500,000
10. Stockholders’ Equity
a. 28,770,000 c. 28,450,000
b. 28,550,000 d. 28,930,000

AP-100Q: Problem 3
You were assigned to audit the shareholders’ equity of Poveous Corp. for the year ended December
31, 2020. Poveous Corp. was incorporated in early 2019 when it was authorized by SEC to issue
500,000 ordinary shares (P10 par) and 100,000 convertible preference shares (P20 par). The following
schedule reflects the company’s capital balances as of December 31, 2019:

Ordinary shares, 100,000 shares issued during the company’s P1,800,000 incorporation in
exchange of a land with a fair value of P1.4M.
Preference shares, 50,000 shares issued during the company’s 2,500,000
incorporation at P50 per share. Each preference share is convertible to
four ordinary shares.
Retained earnings, which is the company’s net income in 2019 540,000

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 Total shareholders’ equity P4,840,000

Your inquiries and investigation revealed the following transactions, which occurred in 2020:

a. On February 12, 20,000 preference shares were converted to ordinary shares.

b. On August 15, the company reacquired 20,000 ordinary shares (from the 2019 issue) at P22
per share and reverted them to treasury since it intends to reissue the same.

c. On October 11, the company reissued 4,000 treasury shares at P28 per share.

d. On November 5, the company reissued 6,000 treasury shares at P19 per share.

e. On December 1, the company retired 5,000 treasury shares and reverted them to unissued
basis.
f. On December 15, the company reissued 2,000 treasury shares in lieu of an equipment with a
fair market value of P62,000.

g. The company registered an adjusted net income in 2020 at P830,000.

Based on the information above, determine the adjusted balance of the following as of Dec. 31, 2020:
11. Ordinary Shares
a. 1,800,000 c. 1,720,000
b. 1,750,00 d. 1,700,000
12. Preference Shares
a. 1,000,000 c. 800,000
b. 600,000 d. 400,000
13. Share premium – Ordinary shares
a. 960,000 c. 1,000,000
b. 980,000 d. 1,020,000
14. Share premium – Preference shares
a. 1,500,000 c. 1,000,000
b. 600,000 d. 900,000
15. Share premium – Treasury shares
a. None c. 24,000
b. 6,000 d. 18,000
16. Retained earnings - Unappropriated
a. 1,356,000 c. 1,290,000
b. 1,370,000 d. 1,304,000
17. Total stockholders’ equity
a. 5,584,000 c. 5,581,000
b. 5,518,000 d. 5,610,000

AP-100Q: Problem 4
Martis Co. had the following selected information in its December 31, 2019 Stockholders’ Equity
portion of its balance sheet:

10% Preference shares, P100 par value, 50,000 shares authorized,

10,000 shares issued and outstanding P1,000,000
Ordinary shares, P50 par value, 100,000 shares authorized,
50,000 shares issued. 2,500,000
Share premium on preference shares 250,000 Share premium on ordinary shares
500,000
Accumulated profits 2,350,000
Treasury shares, 10,000 shares (750,000)

Transactions in 2020 are as follows:

a. On February 4, the company reissued 4,000 treasury shares at P90 per share.

b. On March 1, the company issued 5,000, P1,000 12% bonds payable with detachable warrants.
Two warrant is attached to each P1,000 bond. The bonds which pay semi-annual interest every
June 30 and December 31 were issued at total lump sum of P5,500,000. On the date of
issuance, the bonds were quoted at 105 (excluding accrued interest) without the warrants
while each warrant can be sold in the market at P25. Five warrants surrendered together with
P65 exercise price entitle the holder to acquire one ordinary share. Warrants can be exercised
2 years from the date of the issuance.

c. On April 15, stock rights were issued to ordinary shareholders. Ten stock rights plus P55 per
share entitle the holder to acquire one additional ordinary share.

d. On June 1, 60% of the warrants issued with the bonds were exercised.

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 e. On August 15, all but 6,000 stock rights were exercised by the ordinary shareholders.

f. On December 1, the remaining treasury shares were retired.

g. Adjusted net income for the year amounted to P1,250,000.

Based on the information above, answer the following:

18. What is the correct amount to be allocated to the ordinary share warrants as a result of the
transaction on March 1?
a. None c. 150,000
b. 50,000 d. 250,000
19. What is the credit to the share premium account as a result of the exercise of the stock warrants
on June 1?
a. 78,000 c. 90,000
b. 60,000 d. 108,000
20. What is the credit to the share premium account as a result of the exercise of the stock rights on
August 15?
a. 19,000 c. 20,000
b. 14,000 d. 15,000
21. Entry to record the retirement of treasury shares on December 1 shall involve:
a. Debit to share premium – Treasury at P30,000.
b. Debit to retained earnings at P30,000.
c. Credit to share premium – Treasury at P60,000.
d. Credit to share premium – Ordinary shares at P60,000
22. What is the total Additional paid in capital as of December 31, 2020?
a. 567,000 c. 817,000
b. 627,000 d. 877,000

AP-100Q: Problem 5
Silvana Corp. reported the following amounts in the shareholders’ equity section of its December 31,
2019, statement of financial position:

Preference shares, P10 par (100,000 shares authorized, P400,000

40,000 shares issued)
Ordinary shares, P5 par (50,000 shares authorized, 20,000 shares issued) 100,000
Share premium – Ordinary shares 192,000
Accumulated profits 1,200,000

The following transactions occurred during 2020:

a. At the beginning of 2020, the company paid the annual 2019 P1 per share dividend on
preference shares and P0.50 per share dividend on Ordinary shares. These dividends had
been declared on December 1, 2019. Further investigations revealed that no entry has been
made to account for the declaration of the said dividends.

b. On February 13, the company purchased 4,000 shares of its own outstanding ordinary shares
for P80,000.
c. On March 30, the company declared and issued ordinary shares split-up (1 is to 2).

d. On April 15, the company issued 10,000 preference shares with 20,000 detachable warrants
for P190,000. Four warrants together with P5 shall entitle the holder to acquire one ordinary
share. The preference shares were currently selling on this date at P18 per share while each
warrant can be sold separately at P1 per warrant. Warrants can be exercised up to December
31, 2022.

e. On June 19, the company reissued 2,800 treasury shares for P50,000.

f. On July 5, 80% of the warrants issued on April 15 were exercised.

g. On September 30, the company declared a 20% stock dividend on the outstanding ordinary
shares when the stock is selling for P6 per share. The share dividends were subsequently
issued on October 11.

h. December 1, the company declared the annual 2020 P1 dividend on preference shares and the
P0.25 per share dividend on ordinary shares. These dividends are payable at the beginning of
2021.

i. The company registered a net income for 2020 at P940,000.

Requirements:
23. What is the effect to stockholders’ equity as a result of the share split on March 30?
a. No effect. c. 200,000 increase
b. 100,000 increase d. 50,000 increase

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24. What is the amount allocated to warrants from the transaction on April 15?
a. 20,000 c. 10,000
b. 21,000 d. 19,000
25. The entry to record reissue of treasury shares on June 19 shall involve:
a. Debit to share premium – Treasury at P22,000
b. Debit to retained earnings at P22,000.
c. Credit to share premium – Treasury at P22,000.
d. Debit to retained earnings at P6,000.
26. The entry to record the exercise of warrant on July 5 shall involve:
a. Credit to share premium – Ordinary shares P15,200.
b. Debit to retained earnings at P15,200.
c. Credit to share premium – Ordinary shares at P25,200.
d. Credit to Ordinary shares at P20,000
27. What is the amount credited to accumulated profits as a result of the declaration of the 20% stock
dividend on September 30?
a. 19,400 c. 41,760
b. 17,400 d. 46,560
28. What is the amount credited to accumulated profits as a result of the 2020 cash dividend
declaration?
a. 50,000 c. 59,700
b. 61,640 d. 51,640
29. What is the correct balance of the accumulated profits-unappropriated account as of December 31,
2020?
a. 1,956,960 c. 2,006,960
b. 2,008,960 d. 1,905,960
30. Assuming that the share dividends declared in item f was 20%, what is the amount credited to
retained earnings as a result of the declaration of stock dividends?
a. 9,700 c. 3,880
b. 19,400 d. 23,280

AP-100Q: Problem 6
Karina Corporation presented the following balance sheet for Dec. 31, 2020:
Assets
Current assets P30,000
Treasury shares (at market value, cost is P15,000) 14,000
Depreciable fixed assets 56,000
Total assets P100,000

Liabilities and Shareholders’ Equity

Current liabilities P20,000
Ordinary shares subscribed (500 shares) 10,000
Long-term debt 8,000
Total liabilities P38,000
Ordinary shares (4,000 shares issued) P18,000
10% Preference shares (1,000 shares issued) 12,000
Subscriptions receivable (4,000)
Reserve for depreciation 16,000
Accumulated profits 20,000
Total stockholders’ equity P62,000
Total liabilities and stockholders’ equity P100,000

Additional information:
1. Your investigation of Karina Corporation’s financial records indicates that all authorized
shares have been either issued or subscribed. The par values for the ordinary and
preference shares are P2 and P10, respectively.

2. The treasury shares were originally purchased when the market price was P20 per share.
During 2020, 250 treasury shares were resold for P25 per share. A gain on treasury share
transactions was credited for the difference between the original cost and the selling price.
The amount was included in the determination of the net income for the year. Furthermore,
the excess of cost over market of the treasury shares at the end of the period was
recognized as an unrealized loss on the 2020 income statement.

3. You also discovered that a majority stockholder donated during 2020, a land which originally
costed the stockholder P5,000 but with a market value of P9,000 during the date of
donation.

4. Subscriptions receivable are due six months from December 31, 2020.

Determine the adjusted balances of the following:

A B C D
31. Total assets 79,000 83,000 97,000 99,000

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 32. Total liabilities 20,000 28,000 38,000 48,000 33. Additional paid-in capital 30,000 31,250
19,000 21,000 34. Total contributed capital 40,250 41,250 50,250 98,000
35. Total stockholders’ equity 83,000 69,000 62,000 55,000 AP-100Q: Problem 7
The Accumulated profits of Irithel Corp. shows the following debits and credits for the year 2020:
UNAPPROPRIATED ACCUMULATED PROFIT
Date Debit Credit Balance
Jan.1 Balance P565,500
(a) Gain on life insurance policy settlement P50,000 615,500
(b) Write off of intangibles (goodwill) 30,000 585,500
(c) Effect of a change in accounting principle (from
FIFO to weighted average) 100,000 685,500
(d) Loss on sale of treasury stock (There is no APIC from 20,000 665,500
treasury share transactions)
(e) 10% stock dividends on 100,000, P10 par value
shares issued and outstanding (FMV at the same
date at P12.50) 100,000 565,500
(f) 2019 unaccrued employee compensation 160,000 405,500
(g) Premium on ordinary shares issued 65,000 470,500
(h) Stock issuance expenses related to ordinary share
issued above 5,000 465,500
(i) Defaults on ordinary shares subscription. The amount 15,000 480,500
collected was forfeited in favor of the company.
(j) Loss on sale of an equipment 25,000 455,500
(k) Gain on retirement of preference shares at less
than issue price 35,000 490,500
(l) Gain on early retirement of bonds 12,500 503,000
(m) Correction of a prior period error 45,000 548,000
(n) Cash dividends payable 75,000 473,000
(o) Inventory loss from flood 10,500 462,500
(p) Proceeds from sale of donated stocks 37,500 500,000
(q) Revaluation increase in land 150,000 650,000
(r) Appropriations for plant expansion 100,000 550,000
(s) Net income for the period 175,000 725,000

Requirements:
36. How much is the adjusted net income for the year?
a. 207,000 c. 172,000
b. 187,000 d. 159,500
37. How much is the correct unappropriated accumulated profits restated beginning balance?
a. 710,500 c. 550,500
b. 680,500 d. 520,500
38. How much is the correct unappropriated accumulated profits ending balance?
a. 447,500 c. 460,000
b. 422,500 d. 402,500
39. Based on the information above, what is the net/total adjustment to APIC?
a. 172,500 c. 172,000
b. 177,500 d. 159,500

AP-100Q: Problem 8
The shareholders’ equity Hanabi Company on January 1, 2019 showed the following:

Ordinary shares, P50 par, auth. 100,000 shares, 50,000 shares issued P2,500,000
Preference shares, P100 par, authorized 50,000 shares, 20,000 shares
issued. Each preference share is convertible to 3 ordinary shares. 2,000,000
Share premium - Ordinary 600,000
Share premium – Preference 1,200,000
Retained earnings 2,750,000

The following transactions occurred during the year:

a. Reacquired 15,000 ordinary shares on February 1 at P90 per share and placed them in the
treasury.

b. Reissued 8,000 treasury shares at P122 per share on June 4.

c. Reissued 5,000 treasury shares at P75 per share on August 3.

d. Issued stock rights on ordinary shares on September 30. Five stock right entitles the
stockholder to purchase an additional share for P80 per share. The rights shall expire on
December 31.

e. On October 1, 5,000 of the preference shares were converted to ordinary shares.

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 f. All but 3,000 share rights were exercised when the market value of the shares was at P80 per
share on October 11.
g. Declared P3 per share cash dividends on ordinary shares and P6 per share on preference shares
on December 15, to stockholders as of December 31 payable on January 15, 2020.

h. Reported an adjusted net income of P540,000.

Requirements:
40. The entry to record the reissuance of treasury shares in item c shall involve a:
a. Credit to share premium at P75,000.
b. Credit to treasury shares at P375,000.
c. Debit to retained earnings at P75,000.
d. Debit to share premium at P75,000.
41. The entry to record the conversion of preference share to ordinary shares in item e shall involve a:
a. Debit to share premium at P50,000
b. Credit to share premium at P50,000
c. Debit to retained earnings at P300,000
d. Credit to retained earnings at P300,000
42. The entry to record the exercise of stock rights in item f shall involve a:
a. Credit to ordinary shares at P475,000
b. Credit to share premium at P250,000
c. Credit to ordinary shares at P460,000
d. Credit to share premium at P270,000
43. The cash dividend declaration in item g shall involve a debit to retained at:
a. 261,000 c. 313,200
b. 279,000 d. 306,000
44. What is the total additional paid in capital as of December 31, 2019?
a. 1,951,000 c. 2,150,000
b. 2,001,000 d. 2,070,000

AP-100Q: Problem 9
You were assigned to audit the shareholders’ equity of Gatotkaca Inc. for the year ended December
31, 2019. Gatotkaca Corp. was incorporated in early 2018 when it was authorized by SEC to issue
500,000 ordinary shares (P10 par) and 100,000 preference shares (P20 par). The following schedule
Ordinary shares, 100,000 shares issued during the P1,800,000
company’s incorporation in exchange of a land with a
fair value of P1.8M.
Preference shares, 50,000 share issued during the 1,500,000
reflects the company’s capital balances as of December 31, 2018:

company’s incorporation at P30 per share.

Retained earnings, the company’s net income in 2018 949,000
Total shareholders’ equity ?

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Your inquiries and investigation revealed the following transactions, which occurred in 2019:
a. On March 1, 30,000 ordinary shares and a 12%, P500,000 face value bonds payable were
issued in exchange of a building with a fair market value of P1,200,000. The fair value of the
ordinary shares was considerably stable at P25 per share while the fair value of the bonds
excluding the accrued interest was at 110. The bonds pay interest annually every December
31.

b. On August 15, the company reacquired 20,000 ordinary shares (from the 2018 issue) at P24
per share and reverted them to treasury since it intends to reissue the same.

c. On September 10, the company declared a 1 to 2 share split on its ordinary shares. Shares
are currently selling on this date at P35 for ordinary shares and P53 for preference shares.

d. On October 11, the company reissued 30,000 treasury shares at P11.50 per share.

e. On December 1, the company declared a 20% share dividend on ordinary shares distributable
to shareholders as of December 15 distributable on January 31 the following year. The
ordinary shares were selling at P9.50 for the entire month.

f. On December 20, 8,000 preference shares were reacquired at P38 per share and were
immediately retired.

g. The company registered an adjusted net income in 2019 at P830,000.

Based on the information above, answer the following:

45. The entry to record the issuance of securities on March 1 (item a) involves a:
a. Credit to share premium-OS at P350,000.
b. Debit to interest expense at P10,000.
c. Debit to bonds payable at P550,000.
d. Credit to share premium-OS at P340,000.
46. The entry to record the share split on September 10 share involve:
a. Debit to retained earnings at P2,300,000.
b. Ordinary shares issued to become 260,000 shares.
c. Ordinary shares issued to become 220,000 shares.
d. The par value of ordinary shares to become P20 per share.
47. The entry to record the reissuance of treasury shares on October 11 shall involve:
a. Debit to share premium-OS at P15,000.
b. Credit to treasury shares at P345,000
c. Debit to retained earnings at P15,000.
d. Credit to share premium-TS at P15,000.
48. The entry to record the share dividends on Dec. 1, shall require a debit to retained earnings at:
a. 475,000 c. 280,000
b. 320,000 d. 250,000
49. What is the balance of the retained earnings-unappropriated as of December 31, 2019?
a. 1,450,000 c. 1,330,000
b. 1,550,000 d. 1,380,000

AP-100Q: Problem 10
On January 1, 2020 Badang Co. issued 1,000 share options to each of its 10 executive officers. The
options vest at the end of a 6-year period. On the date of the grant, each share option had a fair
value of P15. M expects that all 10,000 options will vest.

50. Assuming that estimates does not change by the end of 2020, what is the salaries expense in
2020
a 30,000 c 25,000
b 35,000 d -0-
51. The compensation expense in 2023 assuming one officer leaves the company in December 2023
and that the company expects that another employee will leave by the end of the 6 th year: a
3,000 c 5,000
b 18,000 d -0-

AP-100Q: Problem 11
In early 2019 Pharsa Corp. granted its 220 employees stock options which can be exercised by the
employees remaining in the company’s employ until the end of 2022, provided further that the
average increase in sales over the four-year period is at least 10%. The said options are exercisable

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starting 2023 and shall expire 2 years after. 2 options entitle the employee to acquire 1 share at P38
exercise price. Ordinary shares had a P50 par value and were currently selling in the market at P76
per share. Each share option had a market value of P12.50.

The number of option per employee depending on the average increase in sales over the vesting
period is as follows:
10% - 15% 100 each
16% - 20% 150 each
20% - 25% 175 each
More than 25% 200 each

The following information regarding employee turnover are deemed relevant:

• In 2019, 10 employees left the company. The company estimates that an additional 25
employees will leave by the end of 2022.
• In 2020, 10 additional employees actually left. The company estimates that an additional 20
employees will leave by the end of 2022.
• In 2021, 10 additional employees actually left. The company estimates that 15 additional
employees will leave by the end of 2022.
• In 2022, 10 additional employees actually left.

Actual and estimated Sales at the end of each year are as follows:
Actual Sales Estimated Increase in Sales
2020 2021 2022
2018 P10,000,000
2019 11,400,000 14% 15% 15%
2020 13,452,000 20% 20%
2021 16,815,000 30%
2022 25,222,500

Requirements:
52. What is the salaries expense related to the share option in 2020?
a. 57,813 c. 139,063
b. 110,938 d. 110,156
53. What is the salaries expense related to the share option in 2022?
a. 162,891 c. 112,500
b. 110,125 d. 132,500
54. Assuming that 80% of the share options vested were exercised in 2023, what is the credit to the
share premium account as a result of the exercise?
a. 187,200 c. 143,000
b. 182,000 d. 171,500

AP-100Q: Problem 12
On January 1, 2020, X-borg Company granted share options to 10 of its key employees entitling them
to acquire P100 par value shares of the company at P110 per share for every 1 option. The share
options will vest on December 31, 2022, provided that the employees remain in the company’s
employ and provided that revenues reach P100 million, the employees will receive 1,000 options
each. If 2022 revenues reach P150 million, the employees will receive 2,000 options each. If 2022
revenues reach P200 million, the employees will receive 3,000 options each.

The market value of the option on the date of grant is P30. The company has a steady pattern of
25% increase in revenues every year over the last 5 years and expects the same pattern during the
vesting period.
In addition, the following information were deemed relevant for the computation of the compensation
expense for each year:
Date Estimated number of Actual revenue earned
Employees who will leave the
company
Dec. 31, 2020 2 P80 million
Dec. 31, 2021 2 120 million
Dec. 31, 2022 3* 200 million
*Actual number of employees who left the company.

REQUIRED:
55. What is the compensation expense to be recognized in 2020?
a 80,000 c 180,000 b 100,000 d 300,000

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56. What is the compensation expense to be recognized in 2021?
a 80,000 c 240,000 b 100,000 d 300,000
57. What is the compensation expense to be recognized in 2022?
a 630,000 c 320,000 b 500,000 d
310,000
58. If the actual employees receiving their options exercise all their options in 2023, how much is
credited to share premium from the related issuance of shares? a 210,000 c 840,000 b 630,000
d 900,000

AP-100Q: Problem 13
On December 31, 2017, Santiago Inc.’s ordinary shares were selling for P55 per share. On this date,
the company creates a compensatory share option plan for its 70 employees. The plan document
states that each employee may purchase 500 shares of its P20 par ordinary shares for P35 per share
after one year if revenues reach P15M, after 2 years if revenues reach P18M, or after three years if
revenues reach P20M. On this date, based on a reliable option pricing model, Santiago Inc. estimates
that each option which can be exercised up to 2022 under the condition that the employee is still
within the employ of the company, has a fair value of P18.

The company has experience a stable 25% increase in revenues for the past 5 years and reasonably
expects the same trend for the upcoming years.

Forty-five employees exercised their vested options on June 15, 2021 while three employees resigned
on the same year without exercising their options, thus were forfeited.
Required:
59. What is the compensation expense related to the share option plan to be recognized in the 2018
financial statements?
a. 315,000 c. 207,000
b. 270,000 d. 90,000
60. What is the balance of the additional paid-in-capital account related to the share options as of
December 31, 2020?
a. 207,000 c. 567,000
b. 540,000 d. 630,000
61. What is the balance of the ordinary share options outstanding account as of December 31, 2021.
a. 135,000 c. 270,000
b. 162,000 d. 405,000
62. What is the resulting Share premium from the issuance of shares from the exercise of the
employee options.
a. 405,000 c. 742,500
b. 432,000 d. 877,500

AP-100Q: Problem 14
On January, 2018, Pandora Corp. granted to 600 employees, 100 share options each exercisable after
3 years, subject to the employees staying with the company until the end of 2020. Options can be
exercised (at a rate of four options to one share) if share price increases from P40 at the beginning of
2018 to above P60 at the end 2020. The exercise price is P32 (par value P10). The share options can
be exercised at any time during the next five years, that is by the end of 2021. The company
estimates the fair value of the share options on the grant date at P5 per option. This estimate takes
into account the possibility that the share price will exceed P60 per share at the end of 2020, thus
options are exercisable and the possibility that the share price will not exceed P60 at the end of 2020,
thus the share options will be forfeited.

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Requirements:
63. What is the ordinary share options outstanding as of December 31, 2019?
a. 180,000 b. 191,667 c. 188,333 d. none
64. What is the compensation expense in 2020?
a. 92,500 b. 91,667 c. 88,333 d. none
65. What is the effect to total APIC assuming that 60% of the options ultimately becoming
exerciseable by the end of the vesting period were eventually exercised?
a. 163,500 b. 343,500 c. 179,850 d. 251,600

AP-100Q: Problem 15
On January, 2018 Jubee Corp. grants each of its 100 employees in the sales department share
options. The share options will vest at the end of 2020, provided that the employees remain in the
entity’s employ and provided that the volume of sales increases by at least an average of 5% per
year. If the sales volume increase by an average of 5% to 10% per year, each employee will receive
100 options each. If sales volume increase by 11% to 15%, each employee will receive 200 options
each. If sales volume increases by more than 15%, each employee will receive 300 options each.
Each option can be exercised to acquire ordinary shares (P100 par) at P120 per share at any time up
to December 31, 2021.

On the grant date, the company estimates that the share options have a fair value of P40 per option.
The company also estimates that the volume of sales for the product will increase by an average of
11% to 15% per year. The entity also estimates, based on weighted probability that 20% of the
employees will leave before the end of 2020.

By the end of 2018, seven employees have left the company and the entity still estimates that a total
of 20 employees will leave by the end of 2020. Product sales have increased by 12% and the entity
expects that this rate will continue over the next 2 years.

By the end of 2019, further five employees left the company. The entity now expects due to low
turnover that 15% of employees will leave by the end of 2020. Product sales increased by 20% and
expects the same increase in 2020.

By the end of 2020, additional two employees left. The entity sales have increased by 16% in 2020.

Requirements:
66. What is the compensation expense in 2018?
a. 640,000 b. 213,333 c. 466,667 d. 352,000
67. What is the compensation expense in 2020?
a. 640,000 b. 213,333 c. 466,667 d. 352,000
68. Assuming that 60% of the options granted to employees were exercised, the entry to record the
exercise shall require a credit share premium at:
a. 928,800 b. 925,200 c. 309,600 d. 306,000

AP-100Q: Problem 16
On December 31, 2017, Kalinga Co. issued share appreciation rights to 20 of its employees. The
rights will vest at the end of 3 years provided the employees remain with the company and provided
further that the average revenue growth over the same period is at 10%. The following are the
approved terms of the said rights:

• If the average revenue is 10 to 15%, each employee will receive 10,000 share appreciation
rights.
• If the average revenue is 16 to 20%, each employee will receive 20,000 appreciation rights.
• If the average growth more than 20%, each employee will receive 30,000 rights.

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On the grant date, each share appreciation right is determined to have a fair value of P6, Kalinga
expects an average growth rate of 12.5 percent during the 3 year vesting period and that 4
employees will ultimately resign before the vesting period ends.

Requirements:
69. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2018?
a. 320,000 c. 720,000
b. 660,000 d. 960,000
70. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2019?
a. 1,080,000 c. 720,000
b. 960,000 d. 400,000
71. How much is the compensation expense in relation to the share appreciation rights to be
recognized in 2020?
a. 2,100,000 c. 1,710,000
b. 1,820,000 d. 1,380,000
72. What is the liability for the share appreciation rights to be recognized as of December 31, 2020?
a. 1,440,000 c. 2,160,000
b. 2,100,000 d. 3,150,000

AP-100Q: Problem 17
On January 1, 2019, Symphony grants its president the right to choose either 10,000 ordinary shares
or to receive cash payment equal to 8,000 shares. These are to vest after rendition of three years of
service. Par value of the company’s share of stock is P40. The president exercised his rights on
September 30, 2022. The fair value information follow:
FMV
Compound instrument, 1/1/2019 P50
Shares 1/1/2019 52
Shares 12/31/2019 65
Shares 12/31/2020 74
Shares 12/31/2021 85
Required:
73. What is the total salaries expense to reported in relation to the compensation plan in 2019?
a. 520,000 c. 84,000
b. 173,333 d. 201,333
74. How much from the salaries expense in 2020 in relation to the compensation plan is attributed to
the liability component?
a. 394,667 c. 221,333
b. 249,333 d. 84,000
75. How much from the salaries expense in 2021 in relation to the compensation plan is attribute to
the equity component?
a. 28,000 c. 285,333
b. 313,333 d. 84,000

AP-100Q: Problem 18
Leslie Corporation has suffered operating losses for some time, but is now operating profitably and
expects to continue to do so. Current and projected income, however, will not be sufficient to
eliminate the deficit in the near term. It also appears that plant assets are overstated considering
current prices and economic conditions. After receiving permission from government authorities and
approval from the shareholders, the board of directors of Leslie Corporation decides to restate the

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company assets and paid-in capital balances in order to remove the deficit and make possible the
declaration of dividends from profitable operations. A balance sheet for the company just prior to this
action is presented on the next page:
Leslie Corporation
Balance Sheet
December 31, 2020

Current assets P250,000 Liabilities P300,000

Property, plant and equipment 1,500,000 Ordinary Shares, 10 par,
Accumulated Depreciation (600,000) 100,000 shares 1,000,000
Share premium 100,000
________ Deficit (250,000)
Total assets 1,150,000 Total P1,150,000

Case 1:
Assuming that the quasi reorganization shall be accomplished as follows:
a) Property, plant and equipment are to be reduced to their present fair market value of
P800,000.
b) Inventories are to be written down by P50,000.
c) Unaccrued obligation shall be recognized at P150,000.
d) Ordinary Shares are to reduced to a par value of P5.

Requirements:
76. What is the total asset after the quasi-reorganization?
a. 1,000,000 c. 1,100,000
b. 1,050,000 d. 1,150,000
77. What is the total stockholders’ equity after the quasi-reorganization?
a. 600,000 c. 500,000
b. 550,000 d. 450,000
78. What is the balance of share premium (additional paid in capital) after the quasi-reorganization?
a. 100,000 c. 550,000
b. 50,000 d. 500,000

Case 2:
Assuming that the quasi reorganization shall be accomplished as follows:
a) Property, plant and equipment are appraised at a replacement cost of P2,500,000.
b) Inventories are to be written down by P75,000.
c) Unaccrued obligation shall be recognized at P175,000.

Requirements:
79. What is the total asset after the quasi-reorganization?
a. 1,750,000 c. 1,650,000
b. 1,700,000 d. 1,675,000
80. What is the total stockholders’ equity after the quasi-reorganization?
a. 1,450,000 c. 1,400,000
b. 1,350,000 d. 1,200,000

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