Aud3 Chapter 8 11

Chapter 8
Audit of
Shareholder’s
Equity
Problem 8 – 1
The retained earnings account for CURDAPIA CO. shows the following (debits) and credits:
Jan. 1 Balance P2,917,000

(a) Loss from fire (3,175)
(b) Goodwill impairment (322,000)
(c) Stock dividend (500,000)
(d) Loss on sale of equipment (175,500)
(e) Officers’ compensation related to income of
Prior periods – accrual overlooked (2,104,000)
(f) Share premium – issuance 795,000
(g) Stock subscription defaults 37,250
(h) Gain on sale of treasury shares 147,000
(i) Gain on early retirement of bonds at less than
Carrying value 81,000
(j) Gain on life insurance policy settlement 78,000
(k) Correction of prior – period error 30,500
What is the corrected amount of retained earnings?
Problem 8 – 2
KANDONG COMPANY began operations on January 1, 2022, by issuing at P15 per share, one-
half of the 475,000 ordinary shares (P1 par value) that had been authorized for issue. In addition,
Kandong has 250,000 6% preference shares (P5 par value) authorized. During 2022, Kandong
reported net income of P512,500 and declared dividends of P118,750.
During 2023, Kandong completed the following transactions:
Jan. 10 Issued an additional 50,000 ordinary shares for P17 per share.
Apr. 2 Issued 75,000 preference shares for P8 per share.
July 21 Authorized the acquisition of a custom-made machine to be delivered in
January 2024. Kandong appropriated P147,500 of retained earnings for the
purchase of the machine.
Oct. 25 Issued an additional 25,000 preference shares for P9 per share.
Dec. 31 Reported P607,500 of net income and declared a dividend of P317,500 to
shareholders of record on January 31, 2024, to be paid on February 4, 2024.
1. What is the total shareholders' equity on December 31, 2023?
2. What is the unappropriated retained earnings balance on December 31, 2023?

Problem 8 – 3
BURDADO CO. is authorized to issue 300,000 of P2 par value ordinary shares. The company
has the following transactions:
(a) Issued 60,000 shares at P30 per share; received cash.
(b) Issued 750 shares, selling at P35 per share, to lawyers for services in connection with the
organization of the corporation. The fair value of the legal services was P27,000.
(c) Issued 900 shares, valued objectively at P30,000, to the employees instead of
paying them cash wages.
(d) Issued 37,500 shares in exchange for a building valued at P885,000 and land valued
at P240,000. (The building was originally acquired by the investor for P750,000 and
has P300,000 of accumulated depreciation; the land was originally acquired for
P90,000.)
(e) Received cash for 19,500 shares issued at P38 per share.
(f) Issued 12,000 shares at P45 per share; received cash.
1. The statement of financial position will report share premium of
Problem 8 – 4
The NEPAL COMPANY is authorized to issue 600,000 shares of P10 par value ordinary share
capital. Nepal's accounting year ends on December 31. The following transactions occurred in
2023, the company's first year of operations.
(a) Issued 20,000 shares at P20 per share; received cash.
(b) Issued 2,500 shares to attorneys for services in securing the corporate charter and for
preliminary legal costs of organizing the corporation. The fair value of the services
was P85,000.
(c) Issued 300 shares, valued objectively at P15,000, to the employees instead of
paying them cash wages.
(d) Issued 325,000 shares in exchange for a building valued at P3,000,000 and land valued at
P4,000,000. (The building was originally acquired by the investor for P2,500,000 and has
P1,000,000 of accumulated depreciation; the land was originally acquired for 1,500,000.)
1. What is the ordinary share capital balance on December 31, 2023?
2. The amount of share premium to be reported on Nepal's statement of financial position

at December 31, 2023, is
3. The amount of organization expense to be charged against Nepal's income for 2023 is
Problem 8 – 5
The following are PAKISTAN COMPANY's equity accounts at December 31, 2022:
Ordinary share capital, par value P10; authorized
200,000 shares; issued and outstanding
120,000 shares.......................................................................................................P1,200,000
Share premium..............................................................................................................180,000
Retained earnings..........................................................................................................720,000
Pakistan Company uses the cost method of accounting for treasury shares.
The following transactions occurred in 2023:
a. Acquired 8,000 ordinary shares for P144,000.
b. Sold 6,500 treasury shares at P20 per share
c. Retired the remaining treasury shares
1. What is the share premium balance on December 31, 2023?
Problem 8 – 6
As the newly appointed auditor in 2023 for JORDAN COMPANY, you have analyzed the
company’s “Share Premium” account. The following is a summary of the account since the
inception of Jordan Company.
Debits Credit
Cash dividends – preference shares P160,000

Cash dividends – ordinary shares 195,000
Excess of amount paid in over
par value of ordinary shares P375,000
Net income 500,000
Gain on early extinguishment of debt 42,000
Treasury preference shares; issued
and reacquired at par 90,000
Loss on litigation 75,000
Correction of a prior period error 23,000
P543,000 P917,000
Credit balance of share premium account 374,000
P917,000 P917,000
1. What is Jordan’s correct net income for 2023?
2. What is the correct retained earnings balance (before appropriation for treasury shares) as at
the end of the current year?
3. What is the correct share premium balance as at the end of the current year?
Problem 8 – 7
The shareholders’ equity section of BENSON CORPORATION’s statement of financial position
as of December 31, 2022, is as follows:
Ordinary share capital, P5 par value; authorized
1,000,000 shares; issued, 400,000 shares..............................................................P2,000,000
Share premium..............................................................................................................850,000
Retained earnings.......................................................................................................3,000,000
P5,850,000
The following events occurred during 2023:
1. Jan. 5 10,000 shares of authorized and unissued ordinary shares were sold for P8
per share.
2. Jan. 16 Declared a cash dividend of 20 centavos per share, payable February 15 to

shareholders of record on February 5.
3. Feb. 10 20,000 shares of authorized and unissued ordinary shares were sold for P12
per share.
4. March 1 A 30% stock dividend was declared and issued. Market value per share is
currently P15.
5. April 1 A two-for-one split was carried out. The par value of the shares was to be
reduced to P2.50 per share. Market value on March 31 was P18 per share.
6. July 1 A 15% stock dividend was declared and issued. Market value is currently
P10 per share.
7. Aug. 1 A cash dividend of 20 centavos per share was declared, payable September 1
to shareholders of record on August 21.
Based on the preceding information, determine the balances of the following at December 31,
2023.
1. Number of ordinary shares issued and outstanding

2. Ordinary share capital
3. Share premium
4. Retained earnings
5. A feature common to both stock splits and stock dividends is
Problem 8 – 8
ISRAEL COMPANY is authorized to issue 200,000 of P10 par value ordinary shares, and
60,000 of 6% cumulative and nonparticipating preference shares, par value P100 per share. The
company engaged in the following share capital transactions through December 31, 2023:
a) 50,000 ordinary shares were issued for P650,000 and 20,000 preference shares
for machinery valued at P2,600,000.
b) Subscriptions for 9,000 ordinary shares have been taken, and 40% of the subscription
price of P18 per share has been collected. The shares will be issued upon collection of
the subscription price in full.
c) 2,000 treasury ordinary shares have been purchased for P12 and accounted for under
the cost method.
The post-closing retained earnings balance at December 31, 2023, is P420,000.
1. What is Israel's total shareholders' equity at December 31, 2023?
Problem 8 – 9
SINGAPORE CORPORATION recently hired a new accountant with very limited experience in
corporation accounting. During the first month, he made the following entries for the
corporation's share capital.
Jan. 2 Cash 200,000
Share capital 200,000
Issued 10,000 of P5 par value
ordinary shares at P20 per share.
10 Cash 600,000
Share capital 600,000
Issued 15,000 of P30 par value
preference shares at P40 per share.
15 Share capital 8,000

Cash 8,000
Purchased 1,000 ordinary shares for
the treasury at P8 per share.
31 Cash 1,000
Loss on sale of share capital 1,500
Share capital 2,500
Sold 500 treasury shares
at P2 per share.
Required:
Prepare the necessary correcting entries.
Problem 8 – 10
The shareholders' equity of the OMAN COMPANY as of December 31, 2022, was as follows:
Ordinary share capital, P10 par, authorized 300,000 shares;
250,000 shares issued and outstanding.................................................................P2,500,000
Share premium...........................................................................................................3,500,000
Retained earnings.......................................................................................................1,740,000
On June 1, 2023, Oman reacquired 40,000 ordinary shares at P40. The following transactions
occurred in 2023 with regard to these shares.
July 1 Sold 15,000 shares at P48.

Aug. 1 Sold 19,000 shares at P27.
Sept. 1 Retired 1,000 shares.
The following entries were made by the company's accountant to record the preceding
transactions.
2023
June 1 Treasury shares 1,600,000

Cash 1,600,000
July 1 Cash 720,000
Treasury shares 720,000
Aug. 1 Cash 513,000
Sept. 1 Ordinary shares 10,000
Oman's net income for 2023 was P135,000.

Based on the preceding information, determine the correct balances of the following accounts:
1. Treasury shares
2. Ordinary shares
3. Share premium – issuance
4. Share premium – treasury shares
5. Retained earnings (before appropriation for treasury shares)

Problem 8 – 11
The LAOS COMPANY wants to raise its working capital. After analysis of the available
options, the company decides to issue 6,000 shares of P30 par preference shares with detachable
warrants. The package of the shares and warrants sells for P120. The warrants enable the holder
to purchase 6,000 shares of P10 par ordinary shares at P40 per share. Immediately following the
issuance of the shares, the share warrants are selling at P10 per share. The market value of the
preference shares without the warrants is P90.
1. What amount should be assigned to the share warrants issued?
2. Assuming that only 80% of the warrants are exercised, the entry to record the exercise of
the warrants should include a
PROBLEM 8-12
Computations of the Correct Balances of SHE Accounts
You are engaged in the audit of UGANDA CO., a new client, at the close of its first fiscal
year, April 30, 2023. The books had been closed prior to the time you began your year-end field
work.
Shown below are the shareholders' equity accounts in the general Ledger:
ORDINARY
SHARE
CAPITAL
09/14/22 CD 110,000 05/01/22 CR 1,200,000
04/28/22 J 109,000
RETAINED
EARNINGS
04/28/23 J 109,000 02/02/23 CR 52,500
04/30/23 J 800,000
INCOME
SUMMARY
04/30/23 J 5,200,000 04/30/23 J 6,000,000
04/30/23 J
Additional information is as follows:

A. From the articles of incorporation:
Authorized share capital 30,000 shares
Par value per share P100
B. Directors' minutes include the following resolutions:
04/30/22 Authorized the issue of 10,000 shares at P120 per share
09/13/22 Authorized the acquisition of 1,000 shares at P110
02/01/23 Authorized the reissue of 500 treasury shares at P105
04/28/23 Declared a 10% stock dividend, payable May 31, 2023 to shareholders of record
as of April 30, 2023. The market value of the Uganda Co. stock on April 28 2023, was
P130 per share.
Based on the above information, determine the correct balances of the following accounts
on April 30, 2023.
1. Ordinary Share Capital
2. Treasury Shares
3. Share Premium
4. Retained Earnings
5. Stock Dividends Payable

PROBLEM 8-13
Analyzing Various Shareholders' Equity Transactions
The shareholders' equity section of BAHRAIN CORPORATION'S statement of financial
position as of December 31, 2022, is as follows:
Ordinary share capital (PS par, 250,000 shares

authorized, 137,500 issued and outstanding) P687,500
Share premium 275,000
Total paid-in capital P 962,500
Unappropriated retained earnings P667,500
Appropriated retained earnings 250,000
Total retained earnings 917,500
Total shareholders' equity P1,880,000
Bahrain Corporation had the following shareholders' equity transactions during 2023:
Jan. 15 Completed the building renovation for which P250,000 of retained earnings
had been restricted. Paid the contractor P242,500, all of which is capitalized.
Mar. 3 Issued 50,000 additional ordinary shares for P8 per share.
May 18 Declared a dividend of P1.50 per share to be paid on July 31. 2023,
to shareholders of record on June 30, 2023.
June 19 Approved additional building renovation to be funded internally. The estimated
cost of the project is P200,000, and retained earnings are to be restricted for
that amount.
July 31 Paid the dividend.
Dec. 31 Declared a property dividend to be paid on January 10, 2024, to shareholders of
record on January 5, 2024. The dividend is to consist of equipment with a
carrying value of P150,000. The equipment's fair value at December 31, 2023, is
P157,500.
Dec. 31 Reported P442,500 of net income on December 31, 2023. Income statement.
1. The balance in the ordinary share capital account at December 31. 2023, should be
The balance in the share premium account at December 31, 2023, should be
2. The balance in the unappropriated retained earnings account at December 31,

2023, should be
3. The total shareholders' equity at December 31, 2023, should be
4. An audit program for the audit of the retained earnings account should include a
step that requires verification of
A. Market value used to charge retained earnings to account for a 2-for-1 stock split.
B. Approval of the adjustment to the beginning balance as a result of a write-down of an
account receivable.
C. Authorization for both cash and stock dividends.
D. Gain or loss resulting from disposition of treasury shares.
5. Where no independent stock transfer agents are employed and the corporation issues
its own stocks and maintains stock records, cancelled stock certificates should
A. Be defaced to prevent issuance and attached to their corresponding stubs.
B. Not be defaced but segregated from other stock certificates and retained in a
cancelled certificates file.
C. Be destroyed to prevent fraudulent reissuance.
D. Be defaced and sent to the secretary of finance.
6. Choose the correct statement.
A. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning restrictions on
the payment of dividends.
B. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent and registrar concerning the number
and outstanding. of shares issued
C. entity does not maintain its own stock records, the auditor should obtain written
confirmation from the transfer C. When an agent and registrar concerning guarantees
of preference share liquidation value.
D. When an entity does not maintain its own stock records, the auditor should obtain
written confirmation from the transfer agent to the registrar concerning the number of
shares subject to agreements to repurchase.
7. Which of the following statements is correct?

A. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is always required.
B. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is required when the company classifies treasury shares
with other assets.
C. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is not required if the treasury share is a deduction from
shareholders' equity.
D. When a company has treasury share certificates on hand, a year-end count of the
certificates by the auditor is required when the company had treasury share
transactions during the year.
8. The retained earnings account would be debited for the following transactions, except
A. A two-for-one stock split.
B. A 5% stock dividend.
C. A 70% stock dividend.
D. An appropriation of retained earnings for possible decline in value of inventories.
9. Which of the following statements is correct?
A. An independent auditor should determine that the company. officers authorized
the issuance of the stock dividend.
B. An independent auditor should determine that the stock dividend was properly
recorded by a memorandum entry only..
C. An independent auditor should determine that the stock dividend was recorded
by transferring appropriate amounts from retained earnings to share capital and
share premium.
D. When a company declared and paid stock dividend, an independent auditor
should determine that shareholders received their additional shares by confirming
year-end holdings with them.
PROBLEM 8-14
You have been assigned to the audit of MALAYSIA CO., a manufacturing company. You have
been asked to summarize the transactions for the year ended December 31, 2023, affecting
shareholders' equity and other related accounts. The shareholders' equity section of Malaysia's
December 31, 2022, statement of financial position follows:
Ordinary share capital, P2 par value, 1,000,000 shares authorized,
180,000 shares issued, 177,580 shares outstanding. P 360,000
Share premium - issuance. 3,640,000
Share premium - treasury shares 45,000
Retained earnings 649,378
Cost of 2,420 treasury shares. (145.200)
Total shareholders' equity. P4.549.178
You have extracted the following information from the accounting records and audit working
papers.
2023
Jan. 15 Malaysia reissued 1,300 treasury shares for P40 per share. The 2,420 treasury
shares on hand at December 31, 2022, were purchased in one block in 2021.
Feb. 1 Sold 180, P1,000, 9% bonds due February 1, 2033, at 103 with one detachable
share warrant attached to each bond. Interest is payable annually on February 1.
The fair market value of the bonds without the share warrants is 95. The
detachable warrants have a fair value of P50 each and expire on February 1, 2024.
Each warrant entitles the holder to purchase 10 ordinary shares at P40 per share.
Mar. 6 2,800 ordinary shares were subscribed for at P44 per share. 40% of the
subscription was collected.
20 The balance due on 2,400 shares was received and those shares were issued.
Nov. 1 There were 110 share warrants detached from the bonds and exercised.
Malaysia's net income for 2023 is P950,000.
Based on the preceding information, determine the correct December 31, 2023, balance of
each of the following:
2. Share premium - issuance
3. Share premium - treasury shares
4. Retained earnings (before appropriation for treasury shares)
5. Treasury shares
6. Total shareholders' equity

PROBLEM 8-15
During its first year of operations, LEBANON COMPANY entered into the following
transactions relating to shareholders' equity. Lebanon's articles of incorporation authorized the
issue of 2,400,000 ordinary shares, P10 par per share, and 300,000 preference shares, P50 par per
share.
Mar. 14 Sold 500,000 ordinary shares for P100 per share.
15 Issued 20,000 ordinary shares to attorneys in exchange for legal services.
15 Sold 35,000 of its ordinary shares and 10,000 preference shares for P6,000,000.
Nov. 20 Issued 1,900 of its ordinary shares in excharige for Equipment for which the
cash price was known to be P185,000.
Based on the preceding information, determine the correct balance of each of the following
accounts.
2. Share premium - ordinary shares
3. Preference share capital
4. Share premium - preference shares

PROBLEM 8-16
SYRIA COMPANY was formed on July 1, 2020. It was authorized to issue 600,000 shares of
P10 par value ordinary shares and 200,000 of 8 percent P25 par value, cumulative and preference
shares. Syria Company has a July 1-June 30 fiscal year.
The following information relates to the shareholders' equity accounts of Syria Company:
Ordinary Shares
Prior to the 2022-2023 fiscal year, Syria Company had 220,000 of outstanding ordinary shares
issued as follows:
1. 190,000 shares were issued for cash on July 1, 2020, at P31 per share.
2. On July 24, 2020, 10,000 shares were exchanged for a plot of land which cost the
seller P140,000 in 2014 and had an estimated market value of P440,000 on July 24, 2020.
3. 20,000 shares were issued on March 1, 2022; the shares had been subscribed for P42 per
share on October 31, 2021.
During the 2022-2023 fiscal year, the following transactions regarding ordinary shares took
place:
2022
Oct. 1 4,000 shares were issued for cash at P46 per share.
Nov.30 Syria purchased 4,000 of its own ordinary shares on the open market at P39
per share.
Dec. 15 Syria declared a 5% stock dividend for shareholders of record on January 15,
2023, to be issued on January 31. 2023. Syria was having a liquidity problem and
could not afford a cash dividend at the time. Syria's ordinary shares were selling
at P52 per share on December 15, 2022.
2023
June 20 Syria sold 1,000 of its own ordinary shares that it had purchased on November
30, 2022, for P42,000.
Preference Shares
Syria issued 100,000 preference shares at P44 per share on July 1, 2021.
Cash Dividends
Syria has followed a schedule of declaring cash dividends in December and June with
payment being made to shareholders of record in the following month. The cash dividends
which have been declared since inception of the company through June 30, 2023, are shown
below:
DECLARATION DATE ORDINARY SHARES PREFERENCE SHARES
12/15/21 P0.30 per share P1.00 per share
06/15/22 P0.30 per share P1.00 per share
12/15/22 ----------------- P1.00 per share
No cash dividends were declared during June 2023 due to the company's liquidity problems.
Retained Earnings
As of June 30, 2022, Syria's retained earnings account had a balance of P1,380,000. For the
fiscal year ending June 30, 2023, Syria reported net income of P80,000.
In March 2022, Syria received a term loan from JST National Bank The bank requires Syria to
establish a sinking fund and restrict retained earnings for an amount equal to the sinking fund
deposit. The annual sinking fund payment of P100,000 is due on April 30 each year, the first
payment was made on schedule on April 30, 2023.
1. What is the ordinary share capital account balance at June 30, 2023?
2. The total share premium - ordinary shares at June 30, 2023, is
3. The unappropriated retained earnings at June 30, 2023, should be
4. The total number of ordinary shares issued and outstanding at June 30, 2023, should be
5. The total shareholders' equity at June 30, 2023, should be

PROBLEM 8-17
Share-Based Compensation:
Grant with Performance Condition in which the Length of the Vesting Period Varies
At the beginning of year 1, an entity grants 200 shares each to 500 employees. The grant is
conditional upon the employees remaining in the entity's employ until the performance condition
described below is satisfied.
Performance Condition
The shares will vest at the end of:

Year 1 if the entity's earnings increase by 15%.
Year 2 if the entity's earnings increase by more than an average of 11% per
year over the two-year period.
Year 3 if the entity's earnings increase by more than an average of 8% per
year over the three-year period.
The shares have a fair value of P15 at the beginning of year 1, which equals the share price at
grant date. The entity does not expect to pay dividends over the three-year period.
The following events occurred:

Year 1 30 employees have left during year 1 and the entity expects, on the basis of a
weighted average probability, that a further 40 will leave during year 2.
The entity's earnings have increased by 14% by the end of year 1 and the entity
expects that the earnings will continue to increase at a similar rate in year 2.
Therefore, the entity expects that the shares will vest at the end of year 2.
Year 2 35 employees have resigned by the end of year 2 and the entity expects that
a further 30 will leave during year 3.
Earnings have increased by only 7% during year 2. Hence, the shares do not vest
at the end of year 2 as expected by the end of year 1. The entity expects that by
the end of year 3, its earnings will increase by at least 5%, thereby achieving the
average of 8% per year.
Year 3 28 employees have resigned by the end of year 3.
The entity's earnings have increased by 6% during year 3. This results in an
average increase of 9% per year over the three-year vesting period.
Based on the preceding information, determine the following:

1. Cumulative compensation expense at the end of year 1
4. The year in which the share options vested to the entity's employees
5. Share options outstanding at the end of year 2

PROBLEM 8-18
Share-Based Compensation: Grant with Market Condition
At the beginning of year 1, an entity grants to a senior executive 30,000 share options. The grant
is conditional upon the executive remaining in the entity's employ until the end of year 3.
The share options can be exercised if the entity's share price increases from P20 at the beginning
of year 1 to above P30 at the end of year 3. If the share price is above P30 at the end of year 3,
the share options can be exercised at any time during the next five years, ie., by the end of year 8.
The entity estimates the fair value of the share options on grant date to be P5 per option. This
estimate takes into account the following market condition:
 The possibility that the share price will exceed P30 at the end of year 3, i.e., the
share options become exercisable; and
 The possibility that the share price will not exceed P30 at the end of year 3, i.e., the
share options will be forfeited.
The following actual events occurred in years 1 to 3:
Year 1 The share price has increased to P24.

The entity's estimate of the fair value of the options is P4 at the end of year 1.
This takes into account whether the market condition will be satisfied by the end
of year 3.
Year 2 The share price has decreased to P22. However, the entity remains optimistic
that the share price target will be met by the end of year 3.
The estimated fair value of the share options is P3. Again, this estimate takes into
account the market condition noted above
Year 3 The share price only reaches P28 by the end of year 3.
The estimated fair value of the share options is zero, as the market condition has
not been satisfied.
1. Compensation expense for year 1

4.Share options outstanding at the end of year 2
5.Cumulative compensation expense for the three-year period
PROBLEM 8-19
Share-Based Compensation: Grant with Performance Condition in which the Exercise
Price Varies.
At the beginning of 2023, an entity grants 100 share options each to 1,000 employees. The grant
is conditional upon the employees remaining in the entity's employ during a vesting period of
three years.
The exercise price at grant date is estimated at P30. However, the exercise price drops to P20 if
the entity's earnings increase by at least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share options, with an exercise
price of P20, is P10 per option. If the exercise price is P30, the entity estimates that the share
options have a fair value of P9 per option.
The following actual events occurred:

2023
60 employees have left. The entity expects, on the basis of a weighted average probability, that
a further 60 employees will leave during 2022 and 2023, respectively.
The entity's earnings increased by 12%, and the entity expects that earnings will continue to
increase at this rate over the next two years. The entity therefore expects that the earnings target
will be achieved, and hence, the share options will have an exercise price of P20.
2024
At year end, a further 70 employees have resigned. The entity expects that a further 60
employees will leave during 2023.
The entity's earnings increased by 13%, and it continues to expect that the earnings target will
be achieved.
2025
A further 56 employees have left by the end the year.
Due to a general decrease in market demand, the entity's earnings increased by only 3%.
Because the earnings target was not achieved, the 100 vested share options for each employee
have exercise price of P30.
1. Compensation expense for 2023
4. Share options outstanding at the end of 2024
5. Share options outstanding at the end of 2025

PROBLEM 8-20
Share-Based Compensation: Length of the Vesting Period Varies (PFRS 2, Implementation
Guidance)
At the beginning of year 1, the entity grants 100 shares each to 500 employees, conditional upon
the employees remaining in the entity's employ during the vesting period.
The shares will vest at the end of year 1 if the entity's earnings increase by more than 18 percent;
at the end of year 2 if the entity's earnings increase by more than an average of 13 percent per
year over the two-year period; and at the end of year 3 if the entity's earnings increase by more
than an average of 10 percent per year over the three-year period.
The shares have a fair value of P20 per share at the start of year 1, which equals the share price at
grant date.
By the end of year 1, the entity's earnings have increased by 14 percent, and 20 employees have
left. The entity expects that earnings will continue to increase at a similar rate in year 2, and
therefore expects that the shares will vest at the end of year 2. The entity expects, on the basis of
a weighted average probability, that a further 30 employees will leave during year 2.
By the end of year 2, the entity's earnings have increased by only 10 percent and therefore the
shares do not vest at the end of year 2. 42 employees have left during the year. The entity
expects that a further 15 employees will leave during year 3, and that the entity's earnings will
increase by at least 6 percent, thereby achieving the average 10 percent per year.
By the end of year 3, 10 employees have left and the entity's earnings had increased by 8 percent,
resulting in an average of 10.67 percent per year.
Based on the foregoing, answer the following:
1. What amount of compensation expense should be recognized in year 17
2. What amount of compensation expense should be recognized in year 2?

PROBLEM 8-21
Share-Based Compensation: Number of Equity Instruments Varies (PFRS 2, Implementation
Guidance)
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.
Based on the preceding information, answer the following:
1. What is the compensation expense for year 1?
4. What is the cumulative compensation expense for years 1, 2, and 3?
5. At the end of year 2, the entity should report share options outstanding of
Problem 8-22
At the beginning of year 1, an entity grants to a senior executive 3,000 share options, conditional
upon the executive remaining in the entity’s until the end of year 3. The exercise price is P40.
However, the exercise price drops to P30 if the entity’s earnings increase by at least an average
of 10 percent per year over the three pear period.
On grant date, the entity estimates that the fair value of the share options, with an exercise
price of P30, is P15 per option. If the exercise price is P40, the entity estimates that the share
options have a fair value of P12 per option.
During year 1, The entity’s earning increase By 12%, phone and the entity aspect that the
earnings will continue to increase at this rate over The next two years. The entity therefore
expects that the earnings target, will be achieved, and hence the share Options will have an
exercise price of P30.
During year 2, the entity’s earnings increased by 13 Percent, And the entity continues to
expect that the earnings target will be achieved.
During year 3, the entity’s earnings , Increased by only 3 percent and therefore the earnings
target was not achieved. The executive completes three years’ service, And therefore satisfies the
service condition. Because the earnings target was not achieved, the 3000 vested shares option
have an exercise price of P40.
Based on the preceding information, answer the following;
1. what is the compensation expense in year 1?

2. What is the compensation expense in year 2?
3. What is the compensation expense in year 3?
4. At the end of year 2, the entity should report share options outstanding of
5. What is the commutative compensation expense of year 1,2 and 3?
Problem 8-23
At the beginning of year one, an entity grants to senior executive 3000 share options, Conditional
upon the executive remaining in the entity’s employ until the end of year 3. However, the share
options cannot be exercised and the share price has increased from P50 at the beginning of year 1
to above P65 at the end of year 3. If the share price is above P65 at the end of year 3, the share
options can be exercised at any time during the next seven years, i.e., by the end of year 10.
The entity applies a binomial option pricing model, which take into account the possibility that
the share price will exceed P65 At the end of year 3(and hence the share options become
exercisable) And the possibility that the share price will not exceed P65 At the end of year 3 (and
hence the options will be forfeited). it estimates the fair value of the share option with this
market condition to be beat P20 per option.
Based on the preceding information determine the compensation expense for year 1, 2, and 3.
Problem 8-24
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
year 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 exercise their SARs at the end of year 4 And the
remaining 113 employees exercise their SARs at the end of year 5.
The entity estimates the fair value of 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 equals the cash paid out) at the end of
3, 4, and 4 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
5. What amount of compensation expense should be recognized in Year 5?
6. What amount of salary is payable should the entity report at the end of year 3?
7. What amount of salaries payable should the entity report at the end of year 4?
Problem 8-25
On January 1, Year 1, Entity A Grant share options to each of its 100 employees working in the
sales department. Each of these employees receives 10 share options. The share options will vest
on December 31, year 3, provided that the employees remain in the entity’s employ. On January
1, year 1, fair value per option is P30.
On December 31, year 1, it is expected that during the whole vesting period of three years, 10%
of the employees we leave entity A. On December 31, year 2, this expectation is revised to 30%.
Finally, by December 31, year 30, 20% of the employees left entity A.
There is also a performance condition in addition to the service condition. According to the
performance condition, the option only vest If entity A’s Sales revenue increases by at least
20% by December 31, year 3. On December 31, year 1 and on December 31, year 2, it is expect
that that this target will be met. However, the target is not met by December 31, year 3.
2. What amount of compensation expenses should be recognized in year 2?

Problem 8-26
The following information has been taken from the ledger accounts of China corporation:
Total net income since incorporation P3,200,000

Total cash dividends paid 150,000
Carrying value of the company’s investment
In Yogi Company declared property dividend 600,000
Proceeds from shares of donated shares 150,500
Total value of stock dividends distributed. 420,000
Gains on treasury shares transactions 375,000
Unamortized premium on bonds payable 413,200
Appropriated for contingencies. 700,000
The current balance of an appropriated retained earnings is
Problem 8-27
Bangladesh Company’s December 31 2023, audited statement of financial position reported

retained earnings of P150,000. Net income for 2023 was P85,000, And dividends of P60,000
Were declared and paid in 2023. Bangladesh‘s Accountant discovered that net income for 2022
had been understated by P 25,000 due to an error in recording depreciation expense for 2022.
The amount of retained earnings per books As of December 31 2022,was

Problem 8-28
Ching Ching Has been employed as an accountant by Iran, INC. For a number of years. She
handles all accountant duties, Including the preparation of financial statements. The following is
the statement of earned surplus prepared by Ching Ching for 2023:
Iran,Inc.
Statement of earned surplus for 2023
Balance at January 1,2023. P365,000
Additions:
Change in estimate of 2022 amortization P 5,000
Gain on sales of trading securities. 3,000

Interest revenue 2,000
Net income for 2023 150,000
Decreased depreciation due to change
In estimated life. 13,000. 173,000
538,000
Deduction:
Dividends declared and paid P100,000
Loss on sale of equipment 2,500
Loss on earthquake 83,000. 185,500

Balance at December 31,2023. P325,500
1. What is the correct net income of Iran for 2023?
2. What is the correct retained earnings balance as of December 31 2023?
Problem 8-29
The following selected, accounts were taken from December 31, 2023, trial balance of Indonesia
corporation:
Subscribed shares capital P 1,250,000

Treasury shares,600 shares, at cost 90,000
Unissued shares capital 6,000,000
Shares premium 180,000
Appropriation for plant expansion 500,000
Retained earnings 1,200,000
Authorized shares capital – 100,000 shares. 10,000,000
Subscriptions receivable. 320,000
The minutes of meeting of the board of directors revealed that on December 5, 2023, the
companies board declared a 10% cash dividends payable the shareholders and subscribers of
record on December 20, 2023. the dividends checks are to be distributed on January 10,2024 .
The company’s accountant has not recorded this dividend declaration.
What is the amount of unrecorded dividend payable?

Problem 8-30
The capital accounts of Bhutan company on June 30,2023, are as follows:

Ordinary shares, P10 par, 50,000 shares
Issued and outstanding. P 500,000
The companies ordinary shares are selling at this time P20.
What entries would you make in each of the following cases?
a) A 10% stock dividends is declared and issued

b) A 30% stock dividends it's declared an issued
c) A 4-for-1 stock split is declared and issued
Problem 8-31
Afghanistan Company Has been paying regular quarterly dividends to each shareholder. The
following equity transactions are shown in the company's book:
Jan. 1 P2 Par value ordinary shares; ( 1,600,000 shares outstanding; 3,000,000 shares
authorized).
Feb. 15 Issued 100,000 new shares at P5
Mar. 31 Paid quarterly dividends of P2,550,000.
May 13 P2,000,000 of 1,000 bonds were converted to ordinary shares at the rate of P100
shares per
1,000 bond.
June. 16. Issued an 11% stock dividend.
30 Paid Quarterly dividends. The dividends per share is the same as the paid in the first
quarter.
No other equity transaction occurred after June 30.
1. What is the amount of dividends per share that Afghanistan paid on March 31?
2. What is the amount of dividends that Afghanistan will have to pay in the third quarter
in order to pay the same dividends rate as that paid in previous quarter?
3. What is the total amount of dividends should be paid during the current year?
Problem 8-32
Brunei Company has 50,000 shares of P10 par value shares capital outstanding. In declaring and
Distributing a 50% share dividend, Brunei initially issued Only 20,000 new shares; The other
Dividend shares were not issued because some investors did not own Brunei shares In even
multiplies of 10. To this shareholders, Brunei issued fractional shares warrants.
Prepared journal entries necessary to record the following:

a. Declaration of the shares dividend.
b. Issuance of the full fractional share dividend
c. Issuance of full shares Through the surrender of the required fractional warrants.
( assume that 80% of the fractional share warrant where ultimately turned in for
shares)
PROBLEM 8-33
Cash Dividends; Various Equity Transactions
You have been asked to audit the TURKEY COMPANY. During the course of your audit, you
are asked to prepare comparative data from the company's inception to the present. You have
determined the following:
a. Turkey Company's charter became effective on January 2, 2019, when 20,000 shares of P10
ordinary shares and 10,000 shares of 7% cumulative, nonparticipating, preference shares were
issued. The ordinary shares were sold at P12 per share, and the preference shares were sold at par
value of P100 per share.
b. Turkey was unable to pay preference dividends at the end of its first year. The owners of
the preference shares agreed to accept 2 ordinary shares for every 50 preference shares owned
in discharge of the preference dividends due on December 31, 2019. The shares were issued
on January 2, 2018. The fair market value was P30 per share for ordinary shares on the date of
issue.
B. Turkey Company acquired all the outstanding shares of Akinka Corporation on May 1,
2021, in exchange for 10,000 ordinary shares of Turkey.
. Turkey split its ordinary shares 3 for 2 on January 1, 2022, and 2 for 1 on January 1, 2023.
e. Turkey offered to convert 20% of the preference shares to ordinary shares on the basis of 2
ordinary shares for 1 preference share. The offer was accepted, and the conversion was made on
July 1, 2023.
f. No cash dividends were declared on ordinary shares until December 31, 2021. Cash dividends
per share of ordinary shares were declared and paid as follows:
June 30 Dec. 31
2021 - P3.20
2022 P1.50 P2.50
2023 P1.25 P1.00
A. The number of ordinary and preference shares outstanding on December 31 of each of the
following years:
1. 2020
2. 2021
3. 2022
4. 2023
5. 2024
The amount of cash dividends declared and paid to shareholders for each of the following years:
5. 2021
6. 2022
7. 2023
PROBLEM 8-34
Cash Dividends
The following are the shareholders’ equity accounts of INDIA COMPANY at December
31, 2023.
Ordinary shares, P10 par; authorized 200,000 shares;

issued 90,000 shares 900,000
Preference shares, 12% P25 par; authorized
100,000 shares; issued 15,000 shares; cumulative 375,000

Share premium 2,500,000
Treasury shares (7,500 ordinary shares) 371,250
The preference shares are participating in distribution in excess of a 15% dividend rate on
the ordinary shares. No dividends have been paid in 2021 or 2022. On December 31, 2023,
India wants to pay a cash dividend of P2 a share to ordinary shareholders.
1. What is the amount to be paid to preference shareholders?
2. What is the amount to be paid to ordinary shareholders?

PROBLEM 8-35
Dividends; Computation of Equity Account Balances
UZBEKISTAN COMPANY reported the following amounts in the shareholders’ equity section
of its December 31, 2022, statement of financial position:
Preference shares, 10%, P10 par (100,000 shares
authorized, 20,000 shares issued) P200,000
Ordinary shares, P5 par (50,000 shares authorized
10,000 shares issued) 50,000
Retained earning 600.000
Total P946.000
The following transactions occurred during 2023:
1. Paid the annual 2022 P1 per share dividend on preference shares and P0.50 per share
dividend on ordinary shares. These dividends had been declared on December 31, 2022.
2. Purchased 2,000 shares of its own outstanding ordinary shares for P20 per share.
3. Reissued 700 treasury shares for equipment valued at P25,000.
4. Issued 5,000 preference shares at P15 per share.
5. Declared a 10% stock dividend on the outstanding ordinary shares when the shares
were selling for P12 per share.
6. Issued the stock dividend.
7. Declared the annual 2022 P1 per share dividend on preference shares and the P0.50 per
share dividend on ordinary shares. These dividends are payable in 2023.
8. Appropriated retained earnings for plant expansion, P300,000.
9. Appropriated retained earnings for treasury
shares. The net income for 2023 was P470,000.

Based on the above data, determine the correct December 31, 2023, balances of each of the
following accounts:
1. Preference shares
2. Ordinary shares
3. hare premium
4. Treasury shares
5. Unappropriated retained earnings

PROBLEM 8-36
Analyzing Various Equity Transactions

CYPRUS COMPANY began operations on January 1. Authorized were 20,000 shares of P10
par value ordinary shares and 40,000 shares of 10%, P100 par value preference shares. The
following transactions involving shareholders’ equity occurred during the first year of
operations.
Jan. 1 Issued 500 ordinary shares to the corporation promoters in exchange for property
valued at P170,000 and services valued at P70,000. The property had cost the promoters
P90,000 3 years before and was carried on the promoters’ books at P50,000.
Feb. 23 Issued 10,000 preference shares with a par value of P100 per share. The shares
were issued at a price of P150 per share, and the company paid P75,000 to an agent for
selling the shares.
Mar. 10 Sold 3,000 ordinary shares for P390 per share. Issue costs were P25,000.
Apr. 10 4,000 ordinary shares were sold under share subscriptions at P450 per share.
No shares are issued until a subscription contract is paid in full. No cash was received.
July 14 Exchanged 700 ordinary shares and 1,400 preference shares for a building with
a fair market value of P510,000. The building was originally purchased for P380,000 by the
investors and has a book value of P220,000. In addition, 600 ordinary shares were sold for
P240,000 in cash.
Aug. 3 Received payments in full for half of the share subscriptions and payments on
account on the rest of the subscriptions. Total cash received was P1,400,000. Shares were
issued for the subscriptions paid in full.
Dec. 1 Declared a cash dividend of P10 per share on preference shares, payable on
December 31 to shareholders of record on December 15, and a P20 per share cash dividend
on ordinary shares, payable on January 5 of the following year to shareholders of record on
December 15.
31 Paid the dividend to preference shareholders.
Net income for the first year of operations was P600,000.
Based on the preceding information, calculate the balances of each of the following accounts:
3. Ordinary shares
4. Share premium - ordinary shares
5. Retained earnings
PROBLEM 8-37
Analyzing Various Equity Transactions
ARMENIA CO. began operations on January 1, 2022, by issuing at P30 per share one-half of the
900,000 shares of P10 par value ordinary shares that had been authorized for sale. In addition,
Armenia has 500,000 shares of P50 par value, 6% preference shares authorized. During 2022,
Armenia had P3,200,000 of net income and declared P2,000,000 of dividends.
During 2023, Armenia had the following transactions:
Jan. 9 Issued an additional 100,000 ordinary shares for P18 per
share. Apr. 2 Issued 75,000 preference shares for P65 per share.
July 20 Authorized the purchase of a custom-made machine to be delivered in January
2024. Armenia restricted P800,000 of retained earnings for the purchase of the machine.
Oct. 21 Sold an additional 25,000 preference shares for P55 per share.
Dec. 31 Reported P2,400,000 of net income and declared a dividend of P700,000 to
shareholders of record on January 15, 2024, to be paid on February 4, 2024.
Based on the preceding data, determine the December 31, 2023, balances of the following:
3. Ordinary shares
4. Share premium – ordinary shares
5. Retained earnings (unappropriated)
PROBLEM 8-38
Quasi-Reorganization
YEMEN CORPORATION has incurred losses from operations for many years. At the
recommendation of the newly hired president, the board of directors voted to implement a quasi-
reorganization, subject to shareholders’ and creditors’ approval. Immediately, prior to the quasi-
reorganization, on June 30, 2023, Yemen's statement of financial position was as follows:
Assets
Current assets P1,375,000
Property, plant, and equipment (net) 3,375,000

Other noncurrent assets 500.000
Total assets P5.250.000
Liabilities & Shareholders’ Equity

Total liabilities P1,500,000
Ordinary shares, P10 par 4,000,000

Retained earnings (1,000,000)
Total liabilities & shareholders’ equity P 5.250.000
The shareholders and creditors approved the quasi-reorganization effective July 1, 2023, to be
accomplished by a reduction in property, plant, and equipment (net) of P875,000, a reduction in
other noncurrent assets of P375,000, and a reduction in par value from P10 to P5.
1. Yemen’s July 1, 2023, statement of financial position after the quasi-reorganization should
show total assets of
2. The balance in the share premium account after the quasi- reorganization on July 1, 2023,
should be
3. Yemen’s deficit after the quasi-reorganization on July 1, 2023, should be

PROBLEM 8-39
Quasi-Reorganization
Shown below are ALBANIA COMPANY’s condensed statements of financial position
immediately before and one year after it had completed a quasi-reorganization.
Dec. 31, 2023
(Before Quasi) Dec. 31.2024

Current assets P 900,000 P1,350,000
Property, plant, and equipment (net) 5,100,000 3,870.000
Total assets P6.000.000 P5.220.000
Ordinary shares P7,200,000 P4,650,000

Share premium 660,000 90,000
Retained earnings (1,860.000) 480,000
Total shareholders’ equity P6.000.000 P5.220.000
In 2024, Albania reported net income of P480,000 and depreciation expense of P330,000. The
quasi-reorganization on December 31, 2023, included the write down of the company’s
inventories by P360,000. No purchases or sales of property, plant, and equipment items and no
share transactions occurred in 2024.
Prepare all the journal entries made at the time of the quasi- reorganization.
PROBLEM 8-40
Computation of Book Value Per Share
FRANCE, INC. began operations in January 2023, and reported the following results for each of
its three years of operations.
2021 P300,000 net loss

2022 30,000 net loss
2023 3,950,000 net income
At December 31, 2023, the company’s capital accounts were as follows:

5% cumulative preference shares, par value P100;
authorized, 100,000 shares; issued and
outstanding, 60,000 shares P6,000,000
Ordinary shares, par value P10; authorized,
1,000,000 shares; issued and outstanding,
800,000 shares 8,000,000
France, Inc. has never paid a cash or stock dividend and there has been no change in the capital
accounts since it began operations.
1. What is the book value of the preference shares on December 31, 2023?
2. What is the book value of the ordinary shares on December 31, 2023?
Assume that the preference shares have a liquidation value of P105 per share.
PROBLEM 8-41
Book Value Per Share
You are auditing the financial statements of the ITALY COMPANY as of December 31, 2023.
The company’s general ledger shows the following liability and equity accounts at the end of the
reporting period.
Accounts payable P530,000

Accrued expenses 41,600
Reserve for bond retirement 320,000
Preference shares, 6% cumulative,
P100 par; 6,000 shares authorized;
4,000 shares issued; 3,700 shares
outstanding (P110 liquidation value per share) 400,000
Ordinary shares, P10 par; 200,000 shares
authorized; 80,000 shares issued and Outstanding 800,000

Treasury preference shares, at cost 36,000
Chapter 9
Audit of Other
Income
Statement Items
PROBLEM 9 - 1
Computation of Net Income

The following are changes in all the account balances of MONACO COMPANY during the year
ended December 31, 2023, except for retained earnings.
Increase/(Decrease)
Cash…………………………………………………………………P395,000
Accounts receivable (net)

…………………………………………….948,000Inventory……………………………………
……………………….(500,000)
Investments…………………………………….……………………(235,000)
Accounts payable……………………………………………………(255,000)
Bonds payable………………………………………………………..410,000
Common stock……………………………………………………….300,000
Additional paid in capital……………………………………………..20,000
There were no entries in the retained earnings account except for net income and a dividend
declaration, of P295,000 which was paid in the current years .
What is Monaco’s net income for the current year?
PROBLEM 9 - 2
Computation of Net Income
The following selected information pertains to ICELAND COMPANY:

Cash balance, January 1, 2023…………………………………………………..P 65,000
Accounts receivable, January 1, 2023……………………………………………..95,000
Collections from customers in 2023……………………………………………1,050,000
Capital account balance, January 1, 2023…………………………….…………..190,000
Total assets, January 1, 2023……..……………………………………………….375,000
Additional cash investment, July 1, 2023…………………………………………25,000
Total assets, December 31, 2023………………………………………………….505,000
Cash balance, December 31, 2023………………………………………………..100,000
Accounts receivable, December 31, 2023………………………………………...180,000
Withdrawals made during 2023…………………………………………………….55,000
total liabilities, December’ 31, 2021………………………………………………205,000
How much net income should Iceland report on its income statement for the year ended
December 31, 2023?
PROBLEM 9 - 3
Discontinued Operation
Presented below are the condensed income statements of LATVIA CORPORATION for the
years ended December 31, 2023 and 2022:
2023 2022
Sales P30,000,000 P29,000,000
Cost of Goods Sold 20,100,000 19,800,000
Gross Income 9,900,000 9,600,000
Operating Expenses 4,050,000 3,900,000
Operating Income 5,850,000 5,700,000
Gain on Sale of Division 1,200,000 -----
Income Tax Expense (25%) Net Incomen P5,287,500 P4,275,000
On October 10, 2023, Latvia entered into an agreement to sell the assets of one of its segments
that can be clearly distinguished, operationally and for financial reporting purposes, from the rest
of the company. The segment was sold on December 31, 2023, for P10,500,000. The book value
of the segment's assets was P9,300,000. The segment's contribution to Latvia's operating income
before tax each year was as follows:
2023 P682,500 Loss

2022 487,500 Income
Based on the above data, calculate the following:
1. Income from continuing operations in 2022

2. Income from continuing operations in 2023
3. Net income in 2022
4. Net income in 2023
5. Assume that by December 31, 2023, the segment had not yet been sold but was considered
held for sale. The fair value of the segment's assets on December 31 was P10,500,000.
The post-tax income (loss) from discontinued operations for 2023 should be
6. Assume that by December 31, 2023, the segment had not yet been sold but was considered
held for sale. The fair value of the segment's assets on December 31 was P7,500,000. The
post-tax loss from discontinued operations for 2023 should be
PROBLEM 9 - 4
Analysis of Different Income Statement Items and Other Related Accounts

On January 1 , 2023 IDAHU, INC. Issued P100,000, 10%, 10-year bonds when the market rate of interest was 8%.
Interest is payable on Juen 30 and December 31. The following financial information is available
Sales P300,000
Cost of sales 180,000
Gross Income 120,000
Interest Expense ?
Depreciation expense (14,500)
Other expense (82,000)
Net Income ?
Dec. 31,2023 Jan. 1, 2023
Accounts Receivable P55,000 P48,000
Inventory 87,000 93,000
Accounts Payable 60,000 58,000
All purchases of inventory are on account. Other expenses are paid for in cash.
The following are the present value factors of P1.00 for 20 periods:
4% 5%
PV of 1 0.4564 0.3769
PV of ordinary annuity of 1 13.5903 12.4622
1. What is the carrying value of the bonds on December 31, 2023?
2. What is the interest expense for 2023?
3. How much was paid for inventory purchases?
4. What is Idahu’s net income for 2023?
5. How much was received from customers in 2023?
PROBLEM 9 - 5
Initial Franchise Fee

On January 1 , 2023 FINLAND CORP. Signed a contract to operate as a franchise of Mc Dodo, for an initial
franchise fee of P5,000,000. The amount of P2,000,000 was paid when the agreement was signed, and the balance
is payable in five annual payments of P600,000 each, beginning January 1, 2024. The contract stipulates that
payment is not refundable and that no future services are to be rendered by the franchisor. Finland can borrow
money at 12% for a loan of this type and the present value of an ordinary annuity of 1 at 12% for five periods is
3.60478.
1. How much should Mc Dodo record as franchise fee revenue on January 1, 2023?
2. What entry would be made by Mc Dodo on January 1, 2023, if it has substantial future services that remain to
be performed?
PROBLEM 9 - 6
Gain on Sale of Bonds

AUSTRIA, INC. purchased bonds at a discount of P18,400. Subsequently, Austria sold these bonds at a premium
of P26,500. Bond discount amortization of P3,400 had been recorded during the period that Austria held this bond
invesment.
What amount should Austria, Inc report as gain on the sale of these bonds?
PROBLEM 9 - 7
Interest on Finance Lease Liability

On January 1, 2023, MOLDOVA, INC. entered into a 10-year noncancelable lease contract for amachine
stipulating annual payments of P40,000. The first payment was made on January 12023. This transaction was
appropriately treated as a finance lease. The ten annual paymentshave a present value of P270,000 at January 1,
2023, based on implicit interest rate of 10%.
What is the amount of interest expense for the year ended December 31, 2023?
PROBLEM 9 - 8
Dealer's Profit on Sales-type Lease

DENMARK CO. leased equipment to Nini Corp. on January 2, 2023, for an 8-year period expiringDecember 31,
2030. Equal payments under the lease are P1,200,000 and are due on January2of each year. The initial payment
was made on January 2, 2023. The list selling price of theequipment is P7,040,000 and its carrying value on Nini
Corp.'s books is P5,600,000. The leaseisproperly accounted for as a sales-type lease. The lease payments have a
present value of P6,600,000 at an imputed interest rate of 12%.
How much dealer's profit should be recognized by Denmark Co. In 2023?
PROBLEM 9 - 9
Directing Financing Lease

IRELAND CO., a lessor of office equipment, purchased a new equipment for P1,000,000onDecember 31, 2022.
The equipment was delivered the same day to Gilbert Co., the lessee.
The following information relates to the lease transaction:
1. The leased asset has an estimated useful life of seven years, which is also the lease term.
2. At the expiration of the lease, the equipment will revert to Ireland, at which time it is expected to have
a residual value of P120,000 (none of which is guaranteed).
3. Ireland's implicit interest rate is 12%.
4. Gilbert's incremental borrowing rate is 14% at December 31, 2022.
5. Lease rentals consist of seven equal annual payments, the first of which was paid onDecember 31, 2022.
6. Ireland properly accounts for this lease as a direct financing lease and as a finance lease by Gilbert.
Both lessor and lessee are calendar year corporations and depreciate all property, plant, and equipment on the
straight-line basis.
The present value tables show the following present value factors:
Present value of 1 for seven periods at 12% 0.4523
Present value of 1 for seven periods at 14% 0.3996
Present value of an annuity due for seven periods at 12% 5.1114
Present value of an annuity due for seven periods at 14% 4.8887
1. How much is the annual lease payment?

2. How much unearned interest income should be recognized by Ireland at the inception of the lease?
3. What is the amount of depreciation expense that Gilbert should record for 2023?
4. The amount of interest expense that should be recorded by Gilbert for 2023
PROBLEM 9 - 10
Interest Income on Investments in Bonds

On July 1, 2023, LITHUANIN CO. purchased Michael Co. ten-year, 8% bonds with a face amount of P1,000,000
for P840,000. The bonds mature on June 30, 2028 and pay interest semiannually on June 30 and December 31. For
the six months ended December 31, 2023, Lithuanian recorded bond discount amortization of P3,600 using the
effective interest method.
What is the amount of interest income to be recognized for the year ended December 31, 2023, from this long-term
investment?
PROBLEM 9-11
Write-off of Plant
On January 3, 2020, NETHERLANDS CORP. purchased a patent for a new consumer product for P450,000. At
the time of purchase, the patent was valid for 13 years. However, the patent’s useful life was estimated to be only
10 years due to the competitive nature of the product. On December 31, 2023, the product was permanently
withdrawn from the market under governmental order because of a potential health hazard in the product.
What is the amount that should be charged against income during 2023, assuming amortization is recorded at the
end of each year?
PROBLEM 9-12
Advertising Expense
The balance of LUXEMBOURG COMPANY’s advertising expense account at December 31, 2023, was P264,000
before any necessary year-end adjustment relating to the following:
1. Included in the P264,000 is the P75,000 cost of product posters for a sales promotional campaign in
January 2024.
2. Radio advertisements broadcast during the December 2023 were billed to Luxembourg on January 3, 2024.
Luxembourg paid the P30,000 invoice on January 15, 2024.
What is the amount of advertising expense that should be reported by Luxembourg in its December 31, 2024,
income statement?
PROBLEM 9-13
Basis and Diluted Earning Per Share: Bond Conversion

Basic and Diluted Earnings Per Share- Bond Conversion
The following information was obtained from the statement of the financial position of NORWAY, INC. on Dec
31, 2023.
6% convertible 10-year bonds at par P2,000,000

Ordinary Share Capital, P20 par, 110,000 shares 2,200,000
Issued and outstanding
Retained Earnings 950,000
Each P1,000 Bond ca be converted into 40 ordinary shares. On September 30,2024, the bonds were all converted
into ordinary shares. Norway reported net income of P600,000 in 2024. The income tax rate is 30%.
1. What is Norway’s basic earnings per share for 2024?
2. What is Norway’s diluted earnings per share for 2024?
PROBLEM 9-14
Basic Earning Per Share

Presented below is the shareholder’s equity section of the comparative statements of financial position of
POLAND COMPANY on December 31,2023 and 2022.
Dec 31, 2023 Dec 31,2022
12% Preference shares, P100 Par P 165,000 P 135,000
Share premium – preference 26,800 18,400
Ordinary Shares, P10 par* 821,200 799,200
Share premium – ordinary 128,600 117,600
Share premium – treasury shares 3,600 1,600
Retained earnings 942,400 729,920
Total shareholder’s equity P2,087,600 P1,864,720
*Par value after June 1, 2023, stock split.
Poland had 32,500 ordinary shares outstanding at December 31,2023.
The following shareholder’s equity transaction were recorder in 2022 and 2023
2022
May 1 Sold 4,500 ordinary shares for P24 par value P20.
June 30 Sold 350 preference shares for P124, Par value P100
Aug 1 Issued an 8% share dividend on ordinary shares. The market value was P30 per share.
Sept 1 Declared cash dividends of 12% on preferences shares and P3 on ordinary shares
Dec 31 Net Income for the year is P632,400
2023
Jan. 31 Sold 1,100 ordinary shares for P30
May 1 Sold 300 preference shares for P128
June 1 Issued a 2-for-1 split of ordinary shares. The par value of ordinary shares was reduced to P10 per share.
Sept.1 Purchased 500 ordinary shares for P18 to be held as treasury shares
Oct 1 Declared cash dividends of 12% on preference shares and P4 per share on outstanding ordinary shares.
Nov 1 Sold 500 treasury shares for P22.
1.What is Poland’s basic earnings per share for 2022?

2. What is Poland’s net income for 2023?
3. What is Poland’s basic earnings per share for 2023?
PROBLEM 9 - 15
Basic and Diluted Earning Per Share: Share Options

The following information was obtained from the audited financial statements of CALIFORNIA, INC. for the year
ended December 31,2023:
Operating Income P 3,500,000

Selling, administrative, and other operating expenses 1,800,000
Finance cost 250,000
10% nonconvertible bonds 2,500,000
Income tax rate 30%
Additional data:
a. There were 35,000 ordinary shares outstanding throughout the year.
b. On January 1,2023, there were options outstanding to purchase 20,000 ordinary shares at
P30 per share. The average market price during the year was P40 per share.
1. What is California’s basic earnings per share for 2023?
2. What is California’s diluted earnings per shares for 2023?
Chapter 10
Accounting
Changes (Policies
& Estimates)
Correction of
Errors
PROBLEM 10-1 Change in Accounting Estimate
On January 4, 2022, GUYANA, INC. purchased computer hardware for P600,000. On the date of acquisition,
Guyana's management estimated that the computers would have an estimated useful life of 5 years and would
have a residual value of P60,000. The company used the double-declining-balance method to depreciate the
computer hardware.
In January 2023, Guyana's management realized that technological advancements had made the computers
virtually obsolete and that they would have to be replaced. Management decided to change the estimated useful
life of the computer hardware to 2 years.
How much depreciation on computer hardware should be recorded in 2023?
Solution and Answer: Refer to Chapter 10 Problem 1
TONGA COMPANY decided on January 2, 2023, to review its accounting practices. This is due to changing
economic conditions and to make its financial statements more comparable to those of other companies in its
industry.
The following changes will be effective as of January 1, 2023:
1. Tonga decided to change its allowance for bad debts from 2% to 4% of its outstanding receivables balance.
Tonga's receivable balance at December 31, 2023, was P690,000. Allowance for bad debts had a debit balance of
P2,000 before adjustment.
2. Tonga decided to use the straight-line method of depreciation on its equipment instead of the sum-of-the-years'-
digits method. It was also decided that this asset has 10 more years of useful life as of January 2, 2023. The
equipment was purchased on January 1, 2013, at a cost of P1,100,000. On the acquisition date, it was estimated
that the equipment would have a 15-year useful life with no residual value.
1. The entry to record the current year provision for bad debts is
2. What is the amount of depreciation on equipment for the current year?
In the past, PERU COMPANY has depreciated its computer hardware using the straight-line method. The
computer hardware has a 10% salvage value and an estimated useful life of 5 years. As a result of the rapid
advancement in information technology, management of Peru has determined that it receives most of the benefits
from its computer facilities in the first few years of ownership. Hence, as of January 1, 2023, Peru proposes
changing to the sum-of-the-years' -digits method for depreciating its computer hardware. The following computer
purchases were made by Peru at the beginning of each year
2020 P90,000
2021 50,000
2022 60,000
1. How much depreciation expense was recorded by Peru in 2020, 2021 and 2022?
2. The amount of depreciation expense that should be recognized in 2023 is

On January 1, 2023, management of TUVALU COMPANY decided to make a revision in the estimates associated
with its production equipment. The equipment was acquired on January 3, 2021, for P800,000 and had been
depreciated using straight-line method. At the date of acquisition, it had an estimated useful life of 10 years with
an estimated salvage value of P50,000. Management has determined that the equipment's remaining useful life is 4
years and that it has an estimated residual value of P60,000.
1. What is the annual depreciation expense recognized in 2021 and 2022?
2. What is the amount of depreciation expense that should be recognized in 2023 as a-result of the changes in
estimates?
ECUADOR CORP. was organized on January 1,2020. An analysis of the company's allowance for bad debts
account reveals the following:
Estimated Actual
Bad Debts Bad Debts
2020 P15,000 P3,000
2021 26,000 5,000
2022 35,000 9,500
2023 No provision yet 8,000
In the past, bad debts had been estimated at 3% of credit sales. The Ecuador Corp.'s accountant has determined
that the 3% rate is inappropriate and suggested that it be revised downward to 1%. Credit sales for the year ended
December 31, 2023, totaled P950,000.
1. Prepare the entry to record bad debt expense for the year.
2. What adjusting entry, if any, would be made to correct the inaccurate estimates for prior periods?

PROBLEM 10-6 CHANGE IN ACCOUNTING
ESTIMATE
On January 1, 2020, COLOMBIA, INC. purchased an equipment for P650,000. The machine had an estimated
useful life of 8 years (with no residual value) at the acquisition date. On January 1, 2023, Colombia determined,
as a result of additional information, that the equipment had an estimated useful life of 10 years from the
acquisition date with no residual value.
3. Prepare the journal entry, if any, to record the cumulative effect of the change on prior years.
4. What is the amount of depreciation expense on the equipment for the year ended December 31, 2023?
SOLUTION - Refer to PROBLEM 10-6 (Page 781-782)
PROBLEM 10-7 CHANGE IN ACCOUNTING ESTIMATES AND PRIOR PERIOD

ERRORS
The following information pertains to VANUATU COMPANY's depreciable assets:
2. Machine X was purchased for P150,000 on January 1, 2018. The entire cost was expensed in the year of
acquisition. The estimated useful life of this machine is 15 years with no residual value.
3. Machine Y cost P525,000 and was acquired on January 1, 2019. On the acquisition date, the expected useful
life was 12 years with no residual value. The straight-line depreciation method was used. On January 2, 2023, it
was estimated that the remaining life of the asset would be 4 years and that there would be a P25,000 residual
value.
2. A building was purchased on January 3, 2020, for P3,000,000. The building was expected to have a useful
life of 20 years with no residual value. The straight-line depreciation method was use. On January 1, 2023, a
change was made to the sum-of-the-years digits method of depreciation. No change was made to the estimated
useful life and residual value of the building.
6. The adjusting entry on January 1, 2023, relative to machine X should include a credit to?
7. What is the carrying value of machine Y on January 1, 2022?
8. What is the depreciation expense on machine Y for 2023?
9. What is the book value of the building at December 31, 2022?
10. What is the book value of the building on December 31, 2023?
PROBLEM 10-8 CHANGE IN ACCOUNTING POLICY
HONDURAS, INC. has been using the FIFO method of inventory costing to since it began operations in
2022. In 2023, the company decided to change to the weighted average method. The following are the
December 31 inventory balances under each method.
FIFO Weighted Average
2022 P450,000 P560,000
2023 895,000 999,000
Prepare the entry, if any, that should be made to record the change in inventory costing method. Ignore income
tax considerations.
SOLUTION - Refer to PROBLEM 10-8 (Page 785)

PROBLEM 10-9 CORRECTING REPORTED
INCOME
DOMINICA CORPORATION reported the following amounts of net income for the years ended December 31,
2021, 2022, and 2023:
2021 P127,000
2022 150,000
2023 128,500
You are performing the audit for the year ended December 31, 2023.
During your examination, you discover the following errors:
a. As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2022 P14,000

understated
December 31, 2023 P23,000
overstated
b. On December 29, 2023, Dominica recorded as a purchase, merchandise in transit which cost P15,000. The
merchandise was shipped FOB Destination and had not arrived by December 31. The merchandise was
not included in the ending inventory.
c. Dominica records sales on the accrual basis but failed to record sales on account made near the end of
each year as follows:
2021 P4,000
2022 5,000
2023 3,500
d. The company failed to record accrued office salaries as follows;
December 31, 2021 P10,000

December 31, 2022 14,000
e. On March 1, 2022, a 10% stock dividend was declared and distributed. The par value of the shares
amounted to P10,000 and market value was P13,000. Thẹ stock dividend was recorded as follows:
Miscellaneous expense 13,000

Ordinary share capital 10,000
f. On July 1, 2022, Dominica acquired a three-year insurance policy. The three-year premium of P6,000
was paid on that date, and the entire premium was recorded as insurance expense.
g. On January 1, 2023, Dominica retired bonds with a book value of P120,000 for P106,000. The gain was
incorrectly deferred and is being amortized over 10 years as a reduction of interest expense on other
outstanding obligations.
• What is the adjusted net income for the year ended December 31, 2021?
• What is the adjusted net income for the year ended December 31,2022?
• What is the adjusted net income for the year ended December 31,2023?
• What adjusting entry should be made on December 31,2023, to correct the error described in item B?
• The adjusting entry on December 31, 2022, to correct the error described in item E should include a debit to?

PROBLEM 10-10 ANALYSIS OF
VARIOUS ERRORS
The audited income statement of URUGUAY CO. shows a net income of P175,000 for the year
ended December 31,2023. Adjustments were made for the following errors:
4. December 31, 2022, inventory overstated by P22,500.
5. December 31, 2023, inventory understated by P37,500.
6. A P10,000 customer's deposit received in December 2023, was credited to sales in 2023.
The goods were actually shipped in January 2024.
What is the unadjusted net income of Uruguay Co. for the year ended December 31, 2023?
SOLUTION - Refer to PROBLEM 10-10 (Page 789)
Problem 10-11
The December 31 year- end financial statements of SAMOA COMPANY contained the
following errors:
December 31, 2022 December 31, 2023

Ending Inventory P48,000 understated P40,500 overstated
Depreciation expense P11,500 understated -----------
An insurance premium of P330,000 was prepaid in 2022 covering the years 2022, 2023, and
2024. The entire amount was charged to expense in 2022. In addition, on December 31, 2023, a
fully depreciated machinery was sold for P75,000 cash, but the sale was not recorded until 2024.
There were no other errors during 2022 and 2023, and no corrections have been made for any of
the errors. Ignore income tax effects.
6. What is the total effect of the errors on SAMOA’s 2023 net income?
7. he errors on the amount of SAMOA’s working capital at December 31, 2023?
8. What is the total effect of the errors on the balance of SAMOA’s retained earnings
at December 31, 2023?
Problem 10- 11 refer to solution 10- 11 (page 790)
Problem 10- 12
The first audit of financial statements of KIRIBATI CO. was made for the year ended December
31, 2023. In reviewing the books, the auditor found out that certain adjustments has been
overlooked at the end of 2022 and 2023. He also discovered that other items had been
improperly recorded. These omissions and other failures for each year are summarized as
follows:
Dec. 31, 2022 Dec. 31, 2023
Salaries payable 145,600 130,000
Interest receivable 43,200 35,500
Prepaid insurance 64,000 51,300
Advances from customers 1 78,400 93,500
Equipment 2 94,000 87,000
6. Collections from customers had been recorded as sales but should have been recognized
as advances from customers because goods were not shipped until the following year.
7. Capital expenditures had been recorded as repairs but should have been charged
to equipment; the depreciation rate is 10% pe year, but depreciation in the year of
the expenditure is to be recognized at 5%.
Required:
Assuming that the nominal accounts for 2023 have not yet been closed into the income summary
account, prepare all the necessary adjusting journal entries on December 31, 2023.
Problem 10- 13
The retained earnings account of ANTIGUA CORP. is reproduced below:
RETAINED EARNINGS
DATE ITEM DEBIT CREDIT

2021
Jan. 1 Balance P81,000
Dec. 31 Net income of the year 18,000
2022
Jan. 10 Dividends paid P15,000
Mar. 06 Stock sold- excess over par 32,000
Dec. 31 Net loss of the year 11,200
2023
Jan. 09 Dividends paid 15,000
Dec. 31 balance 89,800
P131,000 P131,000
The audit of the December 31, 2023, financial statements of the company reveals the following:
• Dividends declared on December 10, 2021 and 2022 had not been recorded in the books
until paid.
• Improvements in the buildings and equipment of P9,600 had been charged to expense
at the end of April 2020. Improvements are estimated to have an 8- year life.
ANTIGUA computes depreciation to the nearest month and uses the straight- line
depreciation.
• The physical inventory of merchandise had been understated by P3,000 at the end of
2021, and by P4,300 at the end of 2022.
• Merchandise in transit and to which company had title at December 31, 2022 and 2023
was not included in the year- end inventories. These shipments of P3,800 and P5,500
were recorded as purchases in January of 2023 and 2024, respectively.
• The company had failed to record sales commissions payable of P2,100 and P1,700 at the
end of 2022 and 2023, respectively.
• The company had failed to recognize supplies on hand of P1,200 and P2,500 at the end
of 2022 and 2023, respectively.
• The company reported a net loss of P12,400 for the year ended December 31, 2023.
• Prepare the necessary adjusting journal entries at December 31, 2023.

• What is the correct net loss of ANTIGUA CORP. for the year ended December 31, 2023?
Problem 10- 14
NAURU CO. reported the following for the first two years of operations:
2021 - P735,000 net income
2022 - P925,000 net income
Early in 2023, the following errors were discovered:
3. Depreciation of building for 2021 was overstated by P85,000.
4. Depreciation of building for 2022 was understated by P192,500.
5. December 31, 2021, inventory was understated by P250,000.
6. December 31, 2022, inventory was overstated by P81,000.
Required:
Prepare the necessary adjusting journal entries. Assume the books are closed. Ignore income tax
considerations.

Problem 10- 15
The following selected accounts are included in the trial balance of PAPU CORP. on December
31, 2023:
Debit Credit
Supplies on hand P135,000
Accrued salaries payable P75,000
Interest receivable 255,000
Prepaid insurance 4,500,000
Unearned rent -
Accrued interest payable 750,000
Additional information is as follows:

A. A physical count of supplies on hand on December 31, 2023, totaled P55,000.
B. The accountant failed to adjust the Accrued Salaries Payable account. Accrued Salaries
Payable on December 31, 2023, totaled P220,000.
C. The Interest Payable account was also left unadjusted at December 31, 2023, totaled
P220,000.
D. The unexpired portions of the insurance policies totaled P3,250,000 as of the December
31, 2023.
E. A total of P1,400,000 was received on January 1, 2023, for the rent of a building for both
2023 and 2024. The total amount received was recognized as revenue in 2023.
F. The correct amount of depreciation for the year was P2,500,000 but was erroneously
recorded as P250,000.
G. Prior years’ depreciation was understated by P360,000.
Required:
Prepare the necessary adjusting journal entries on December 31, 2023. Assume that the books
have not been closed.
PROBLEM 10-16
Analysis and Correction of Various Errors
You have been engaged to audit the financial statements of POHNPEI CORP. For the year ended
December 31, 2023. Your audit reveals the following situations:
1. Depreciation of P16,000 for 2023 on equipment was not recorded.
2. The physical inventory count on December 31, 2022, improperly excluded merchandise
costing P95,000 that had been temporarily stored in a public warehouse. Pohnpei uses a
periodic inventory system.
3. The physical inventory count on December 31, 2023, improperly included merchandise with
a cost of P42,500 that had been recorded as a sale on December 29, 2023, and held for the
customer to pick up on January 2, 2024.
4. A collection of P28,000 on account from a customer received on December 31, 2023, was
not recorded until January 3, 2024.
5. In 2023, Pohnpei sold for P18,500 fully depreciated equipment that originally cost
P110,000. The proceeds from the sale were credited to the Equipment account.
6. During December 2023, a competitor company filed a patent- infringement suit against
Pohnpei claiming damages of P1,000,000. The company’s legal counsel has indicated that
an unfavourable outcome is probable and a reasonable estimate of the court’s award to the
competitor is P600,000. The company has not reflected or disclosed this situation in the
financial statements.
7. Pohnpei has a portfolio of current marketable equity securities acquired in 2022 for trading
purposes. No valuation entry has been made. Information on cost and market value is as
follows:
Cost Market
December 31, 2022 P475,000 P475,000
December 31, 2023 P475,000 P500,000
8. At December 31, 2023, an analysis of payroll information shows accrued salaries of

P61,000. The Accrued Salaries Payable account had a balance of P80,000 at December 31,
2023, which was unchanged from its balance at December 31, 2022.
9. A piece of equipment was acquired on January 2, 2023, for P160,000 and was charged to
Repairs Expense. The equipment is expected to have a useful life of 8 years and no residual
value. Pohnpei normally uses the straight-line method to depreciate this type of equipment.
10. A P75,000 insurance premium paid on July 1, 2022, for a policy that expires on June 30,
2025, was charged to Insurance Expense.
11. A patent was acquired at the beginning of 2022 for P250,000. No amortization has been
recorded since its acquisition. The patent had a 10-year useful life on the date of acquisition.
Required:
Prepare the necessary adjusting journal entries at December 31, 2023.Ignore income tax
considerations.
Solutions and Answers: Refer to Chapter 10 Problem 16
PROBLEM 10-17
Correcting Net Income
The condensed income statement of SURINAME, INC. For the year ended December 31, 2023, is
presented below:
Suriname, Inc.
INCOME STATEMENT
For the Year Ended December 31, 2023
Sales P1,000,000
Cost of goods sold 600.000
Gross income 400,000
Operating expenses 150,000
Net Income P 250.000
The December 31, 2023, audit of the company’s financial statement disclosed the following errors:
1.December 31, 2023, inventory understated P31,000.
2. Accrued expenses of P 4,000 and prepaid expenses of P6,000 were not recognized in the
company’s books.
3. Sales of P5,000 were not recorded until January 2024, although the goods were shipped in
December 2023, and were excluded from the December 31 physical inventory.
4. Purchases of P30,000 made in December 2023, were not recorded although the goods were
received and properly included in the December 31 physical inventory.
5. A machine was sold for P10,000 on July 1, 2023, and the proceeds were credited to the Sales
account. The machine was acquired on January 1, 2020, for P60,000. At that time, it had an
estimated life of 6 years with no residual value. No depreciation was recorded on this machine in
2023.
Required:
1. Prepare the necessary adjusting journal entries on December 31,2023
2. 2.What is the correct net income for the year ended December 31,2023?
PROBLEM 10-18
Correction of Errors
You have been assigned to audit the financial statements of ZAIDE COMPANY for the year ended
December 31, 2023. You discover the following situations.
1. Interest income of P42,300 was not accrued at the end of 2022. It was recorded when
received in February 2023.
2. A computer costing P12,000 was expensed when purchased on July 1, 2022. It is expected
to have a 4-year life with no residual value. The company typically uses straight-line
depreciation for all property, plant, and equipment.
3. Research costs of P99,000 were incurred early in 2022. They were capitalized and were to
be amortized over a 3-year period. Amortization of P33,000 was recorded in 2022 and
P33,000 for 2023.
4. The company received P108,000 from a customer at the beginning of 2022 for services that
it is to perform evenly over a 3-year period beginning in 2022. None of the amount received
was reported as unearned revenue at the end of 2022.
5. Merchandise inventory costing P54,600 was in the warehouse at December 31, 2022, but
was incorrectly omitted from the physical count at that date. The company uses the periodic
inventory method.
Assume all amounts are material and ignore income tax effects.
1. Zaide’s net income in 2022 is overstated by
2. Zaide’s net income in 2023 is overstated by
3. The retained earnings reported on Zaide’s statement of financial position at December
21,2023 is overstated by
PROBLEM 10-19
LOVEY CORPORATION has used the accrual basis of accounting for several years. A review of
the records, however, indicates that some expenses and revenues have been handled on a cash basis
because of errors made by an inexperienced bookkeeper. Income statements prepared by the
bookkeeper reported P870,000 net income for 2022 and P1,110,000. Further examination of the
records reveals that the following items were handled improperly.
1. Rent was received from a tenant in December 2022. The amount, P30,000, was recorded as
income at that time even though the rental pertained to 2023.
2. Wages payable on December 31 have been consistently omitted from the records of that date
and have been entered as expenses when paid in the following year. The amounts of accruals
recorded in this manner were:
December 31, 2021 P33,000

December 31, 2022 36,000
December 31, 2023 28,200
3. Invoices for office supplies purchased have been charged to expense accounts when
received. Inventories of supplies on hand at the end of each year have been ignored, and no
entry has been made for them.
December 31, 2021 P39,000

December 31, 2022 28,200
December 31, 2023 42,600
1. What is the corrected net income for the year 2022?

2. What is the corrected net income for 2023?
PROBLEM 10-20
You are a senior accountant responsible for the annual audit of DODONG CO. For the year ended
December 31, 2023. The information available to you is presented below. You may assume that any
pertinent information not presented below has already been checked and found satisfactory.
Excerpts from trial balance, December 31, 2023:
Debit Credit
Retained Earnings P 93,000
Allowance for Decline in Value of Inventory 36,000
Share Capital (5,000 shares) 500,000
The books have not been closed, but all adjusting entries which the company expects to make have
been posted. Their trial balance shows a P60,000 net income for the year.
Ledger details of Retained Earnings :

Retained Earnings
8/06/23 CD 2,000 12/31/22 Balance 134,500
10/10/23 J 10,000 04/29/23 CR 500
12/31/23 J 30,000
Note: The balance at 12/31/22 agrees last years working papers.
Analysis of selected cash receipts:

Date Account Credited Amount Explanation
04/29/23 Share Capital P10,000 Sold 100 par shares at 105
Retained Earnings 500
10/10/23 Building 530,000 See collary entry dated
10/10/23.
Analysis of selected cash disbursements:
Date Account Debited Amount Explanation
08/06/23 Retained Earnings P 2,000 Freak accident to company
Truck not covered by
Insurance; repairs by DJ repairs
Selected entries in general journal :
Date Entry and Explanation Debit Credit
10/10/23 Accumulated Depreciation 370,000
Retained Earnings 10,000
Buildings 380,000
Sale of main office building
10/31/23 Retained Earnings 30,000

Allowance for Decline in
Value of inventory 30,000
Provision to value materials
Inventory at lower of cost
And net realizable value
Based on the preceding information, determine the following :

1. Loss on sale of building
2. The loss on decline in value of inventories should be charged to
3. Share Capital balance at December 31,2023
4. Share Premium balance at December 31,2023
5. Net income for 2023
PROBLEM 10-21
CHILE CO. reported pretax incomes of P505,000 and P387,000 for the years ended December 31,
2022 and 2023, respectively. However, the auditor noted that the following errors had been made:
a. Sales for 2022 included amounts of P191,000 which had been received in cash during 2022, but
for which the related goods were shipped in 2023. Title did not pass to the buyer until 2023.
b. The inventory on December 31, 2022, was understated by P43,200.
c. The company's accountant, in recording interest expense for both 2022 and 2023 on bonds
payable, made the following entry on an annual basis:
Interest expense 75,000
Cash 75,000
The bonds have a face value of P1,250,000 and pay a nominal interest rate of 6%. They were issued
at a discount of P75,000 on January 1, 2022, to yield an effective interest rate of 7%.
d. Ordinary repairs to equipment had been erroneously charged to the Equipment account during
2022 and 2023.Repairs of P42,500 and P47,000 had been incurred in 2022 and 2023, respectively.
In determining depreciation charges, Chile applies a rate of 10% to the balance in the Equipment
account at the end of the year.
1. What is the corrected pretax income for 2022?
2. What is the corrected pretax income for 2023?
PROBLEM 10-22
BARBADOS, INC. has been using the accrual basis of accounting. However, an examination of the
records reveals that some expenses and revenues have been handled on a cash basis by the
inexperienced bookkeeper of the company. Income statements prepared by the bookkeeper reported
P145,000 net income for 2022 and P185,000 net income for 2023. Further review of the records
reveals that the following items were handled improperly.
1. Rent of P6,500 was received from a lessee on December 23, 2022. It was recorded as income at
that time even though the rental pertains to 2023.
2. Salaries payable on December 31 have been consistently omitted from the records of that date
and have been recorded as expenses when paid in the following year. The salary accruals recorded
in this manner were:
December 31, 2021 P5,500
December 31, 2022 7,500
December 31, 2023 4,700
3. Invoices for office supplies purchased have been charged to expense accounts when received.
Inventories of supplies on hand at the end of each year have been ignored, and no entry has been
made for them.
December 31, 2021 P6,500
December 31, 2022 3,700
December 31, 2023 7,100
1. What is the corrected net income for 2022?
2. What the corrected net income for 2023?
PROBLEM 10-23
SENEGAL CO. is in the process of obtaining a loan at Metropolis Bank. The bank has requested
audited financial statements. Senegal's financial statements have never been audited before. It has
prepared the following comparative financial statements for the years ended December 31, 2023
and 2022.
Senegal Co.
COMPARATIVE STATEMENTS OF FINANCIAL POSITION
December 31, 2023 and 2022
2023 2022
Assets
Current assets:
Cash and cash equivalents P1,205,000 P800,000
Accounts receivable 1,960,000 1,480,000
Allowance for bad debts (185,000) (90,000)
Inventory 1,035,000 1,010,000
Total current assets 4,015,000 3,200,000
Noncurrent assets:
Property, plant, and equipment 835,000 847,500
Accumulated depreciation (608,000) (532,000)
Total noncurrent assets 227,000 315,500
Total assets P4,242,000 P3,515,500
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable P607,000 P980,500
Shareholders' equity:
Ordinary shares, P20 par value;
150,000 shares authorized;
65,000 shares issued and outstanding 1,300,000 1,300,000
Retained earnings 2,335,000 1,235,000
Total shareholders' equity 3,635,000 2,535,000
Total liabilities and shareholders' equity P4,242,000 P3,515,500
Senegal Co.
COMPARATIVE INCOME STATEMENTS
For the Years Ended December 31, 2023 and 2022
2023 2022
Sales P5,000,000 P4,500,000
Cost of goods sold 2,150,000 1,975,000
Gross income 2,850,000 2,525,000
Operating expenses:
Selling expenses 1,150,000 1,025,000
Administrative expenses 600,000 525,000
Total operating expenses 1,750,000 1,550,000
Net income P1,100,000 P975,000
The 2023 audit revealed the following facts:
a. On January 5, 2022, Senegal had charged a 5-year insurance premium to expense. The premium
totaled P31,000.
b. The amount of loss due to bad debts has steadily decreased over the last 2 years. Senegal has
decided to reduce the amount of bad debt expense from 2% to 12 % of sales, beginning with 2023.
(A charge of 2% has already been made for 2023.)
c. Senegal uses the periodic inventory system. The following are the inventory errors for the last 2
years.
2022 - Ending inventory overstated by P75,500
2023 - Ending inventory overstated by P99,000
d. An equipment costing P150,000 was acquired on January 3, 2022. The purchase was recorded by
a charge to operating expense. The equipment has a useful life of 10 years and a residual value of
P25,000. Senegal uses the straight-line method in depreciating its assets.
Required:
1. Prepare the adjusting journal entries to correct the books at December 31, 2023. Assume that the
books for 2023 have not yet been closed.
2. What is Senegal's corrected net income for the year ended December 31, 2022?
3. What is Senegal's corrected net income for the year ended December 31, 2023?
PROBLEM 10-24
In the course of your examination of the December 31, 2023, financial statements of TUNISIA
COMPANY, you discovered certain errors that had occurred during 2022 and 2023. No errors were
corrected during 2022. The errors are summarized below:
1. Beginning merchandise inventory (January 1, 2022) was understated by P259,200.
2. Merchandise costing P72,000 was sold for P120,000 to Naval Company on December 28, 2022,
but the sale was recorded in 2023. The merchandise was shipped FOB shipping point and was not
included in ending inventory. Tunisia uses a periodic inventory system.
3. A two-year fire insurance policy was purchased on May 1, 2022, for P172,800. The whole
amount was charged to Prepaid Insurance. No adjusting entry was prepared in 2022 and 2023.
4. A one-year note receivable of P288,000 was held by Tunisia beginning October 1, 2022.
Payment of the 10% note and accrued interest was received upon maturity. No adjusting entry was
made on December 31, 2022.
5. Equipment with a 10-year life was purchased on January 1, 2022, for P1,176,000. No
depreciation expense was recorded during 2022 or 2023. Assume that the equipment has no residual
value and that Tunisia uses the straight-line method for recording depreciation.
Required:
Prepare journal entries to correct each of the errors described above. Assume that the nominal
accounts
for 2023 have not yet been closed into the income summary account.
Chapter 11
Statement of
Cash Flows
PROBLEM 11 – 1 Cash Flow from Operating Activities: Direct and Indirect Methods
The income statement of HAITI COMPANY is presented below:
Haiti Company
INCOME STATEMENT
For the Year Ended December 31, 2023
Sales P 20,700,000
Cost of goods sold:
Inventory, January 1 P 5,700,000
Purchases 13,200,000
Goods available for sale 18,900,000
Inventory, December 31 4,800,000 14,100,000
Gross income 6,600,000
Operating expenses:
Selling expenses P 1,350,000
Administrative expenses 2,100,000 3,450,000
Net income 3,150,000
Additional information:
a. Accounts receivable decreased P1,080,000 during the year.
b. Prepaid expenses increased P510,000 during the year.
c. Accounts payable to suppliers of merchandise decreased P825,000 during the year.
d. Accrued expenses payable decreased P300,000 during the year.
e. Administrative expenses include depreciation expense of P180,000.
Required:
1. What is the total amount of cash received from customers during the year?
2. What is the total amount of cash paid to suppliers during the year?
3. What is the total amount of cash paid for operating expenses during the year?
4. What is the net amount of cash provided by operating activities?
Solution and Answer refer to Chapter 11: Problem 11-1

PROBLEM 11 – 2 Cash Flow from Operating Activities: Direct Method
The December 31, 2023, income statement of GHANA COMPANY contained the following
condensed information:
Fees revenue P2,520,000

Operating expenses (excluding P1,872,000
depreciation)
Depreciation expense 180,000
Loss on sale of equipment 78,000 2,130,000
Income before income taxes 390,000
Income tax expense 120,000
Net income P270,000
Ghana Company’s comparative statements of financial position at December 31, 2023 and 2022,
contained the following data:
2023 2022
Accounts receivable P111,000 P162,000
Accounts payable* 123,000 93,000
Income taxes payable 12,000 25,500
* pertains to operating expenses
Required:
1. How much was received from customers?
2. How much was paid for operating expenses?
3. What is the net cash provided by operating activities? (Use the direct method.)

PROBLEM 11 – 3 Cash Flows from Operating Activities: Direct Method
SUDAN COMPANY uses the direct method to prepare its statement of cash flows. Sudan's trial
balances at December 31, 2023 and 2022, are shown below:
December 31
2023 2022
DEBITS
Cash P 105,000 P 96,000
Accounts receivable 95,000 90,000
Inventory 93,000 141,000
Property, plant and equipment 300,000 285,000
Unamortized bomd discount 13,500 15,000
Cost of good sold 750,000 1,140,000
Selling expenses 424,500 516,000
General and administrative
411,000 453,900
expenses
Interest expenses 12,900 7,800
Income tax expenses 61,200 183,600
P 2,270,100 P 2, 928,300
CREDITS
Allowance for bad debts P 3,900 P 3,300
Accumulated depreciation 49,500 45,000
Accounts Payable-trade 75,000 46,500
Income taxes payable 63,000 87,300
Deferred income taxes payable 15,900 13,800
8℅ Bonds payable 135,000 60,000
Ordinary share capital 150,000 120,000
Retained earnings 134,100 193,800
Sales 1,616,400 2,336,100
P2,270,100 P2,928,300
Additional data are as follows:

1. Sudan purchased P15,000 in equipment during 2023.
2. One-third of Sudan's depreciation expense is allocated to selling expenses and the remainder to
general and administrative expenses.
3. Bad debt expense for 2023 was P15,000. During the year, uncollectible accounts totaling P14,400
were written off. The company reports bad debts as selling expense.
Required:
Based on the preceding data, determine the amounts that should be reported on Sudan's statement of
cash flows for the year ended December 31, 2023, for the following:
1. Cash collected from customers
2. Cash paid to suppliers
3. Cash paid for interest
4. Cash paid for income taxes
5. Cash paid for selling expenses

PROBLEM 11-4 Cash Flows from Operating Activities: Indirect Method
BURUNDI COMPANY's income statement for the year ended December 31, 2023, reported net
income of P478,800. In preparing the statement of cash flows, the accountant noted the following
transactions during 2023 that might affect cash flow from operating activities:
1. Burundi purchased 300 treasury shares at a cost of P20 per share.

These shares were then resold at P25 per share.
2. Burundi sold 300 of Loleng ordinary shares at 200 per share.

The fair value of these shares was P145 per share at December 31, 2022. This investment
was shown as a non-trading equity security on Burundi's statement of financial position at
December 31, 2022.
3. Burundi changed from the straight-line method to the double-declining-balance method of

depreciation for its machinery. The cumulative effect of the change was P43,800.
4. Burundi revised its estimate for bad debts. Prior to 2023, Burundi's bad debt expense was
1% of its net sales. In 2023, this rate was increased to 2%. Net sales for 2023 were
P1,500,000, and net accounts receivable decreased by P36,000 during 2023.
5. Burundi issued 1,500 shares of its P10 par ordinary shares for a patent. The ordinary
shares had a market value of P23 per share on the transaction date.
6. Depreciation expense amounted to P117,000.
7. Burundi Company holds 40% of the Sioning Corp's ordinary shares as a long-term
investment. Sioning Corp. reported net income of P81,000 for 2023.
8. Sioning Corp. paid a total cash dividends of P6,000 to all investees in 2023.
9. Burundi declared a 10% stock dividend. Three thousand of P10 par ordinary shares were
distributed. The market price on the date of declaration of the stock dividend was P20 per
share.
Required:
What is the amount of net cash provided by operating activities?

PROBLEM 11 – 5 Cash Flows from Operating, Investing, and Financing Activities
The worksheet below presents the comparative statement of financial position items of NAMIBIA
COMPANY at December 31, 2023 and 2022, with a column that shows the increase (decrease)
from 2022 to 2023:
Increase
2022 2023 (Decrease)
Cash P4,037,500 P3,500,000 P537,500

Accounts receivable 5,640,000 5,840,000 (200,000)
Inventories 9,250,000 8,575,000 675,000
Property, plant,
& equipment 16,535,000 14,835,000 1,700,000
Accumulated depreciation (5,825,000) (5,200,000) (625,000)
Investment in associate 1,525,000 1,375,000 150,000
Loan receivable 1,312,500 ---------- 1,312,500
Total assets P32.475.000 P28.925.000 P3.550.000
Accounts payable P5,075,000 P4,775,000 P300,000

Income taxes payable 150,000 250,000 (100,000)
Dividends payable 400,000 500,000 (100,000)
Liability under finance lease 2,000,000 ------- 2,000,000
Ordinary shares, P10 par 2,500,000 2,500,000 -------
Share premium 7,500,000 7,500,000 -------
Retained earnings 14,850,000 13,400,000 1,450,000
Total liabilities and equity 32,475,000 28,925,000 3,550,000
Additional Information:
1. On December 31, 2022, Namibia acquired 25% of Orly Co.'s ordinary shares for
P1,375,000. On that date, the book value of Orly's assets and liabilities, which approximated
their fair values, was P5,500,000. Orly reported income of P600,000 for the year ended
December 31, 2023. No dividend was paid on Orly's ordinary shares during the year.
2. During 2023, Namibia loaned P1,500,000 to Ariel Co., an unrelated company. Ariel made
the first semi-annual principal repayment of P187,500, plus interest at 10%, on December
31, 2023.
3. On January 2, 2023, Namibia sold equipment costing P300,000, with a carrying amount of
P175,000, for P200,000 cash.
4. On December 31, 2023, Namibia entered into a finance lease for an office building. The
present value of the annual rental payments is P2,000,000, which equals the fair value of the
building. Namibia made the first rental payment of P300,000 when due on January 2, 2024.
5. Net income for 2023 was P1,850,000
6. Namibia declared and paid cash dividends for 2023 and 2022 as follows:
Declared Paid Amount
2022 Dec. 15, 2022 Feb. 20, 2023 P500,000
2023 Dec. 15, 2023 Feb. 20, 2024 P400,000
Required:
1. Net cash provided by operating activities

2. Net cash used in investing activities
3. Net cash used in financing activities

PROBLEM 11 – 6 Cash Flows from Operating, Investing, and Financing Activities
The schedule below shows the account balances of LESOTHO CO. at the beginning and end of the
year ended December 31, 2023:
DEBITS Dec. 31, 2023 Dec, 31, 2022

Cash and Cash equivalents P666,000 P150,000
Investment in trading securities 30,000 120,000
Accounts receivable 444,000 300,000
Inventories 873,000 900,000
Prepaid insurance 7,500 6,000
Land and building 585,000 585,000
Equipment 933,000 510,000
Discount on bonds payable 25,500 27,000
Treasury shares 15,000 30,000
Cost of goods sold 1,617,000
Selling and general expenses 861,000
Income taxes 105,000
Unrealized loss on trading securities 12,000
Loss on sale of equipment 3,000
Total Debits 6,177,000 2,628,000
CREDITS
Allowance for bad debts 24,000 P15,000
Accumulated depreciation – Building 78,750 67,500
Accumulated depreciation – Equipment 137,250 82,500
Account payable 165,000 180,000
Notes payable – current 210,000 60,000
Acccrued expenses payable 54,000 26,100
Income taxex payable 105,000 30,000
Unearned revenue 3,000 27,000
Notes Payable – non-current 120,000 180,000
Bonds Payable 750,000 750,000
Defferred tax liability 141,000 159,000
Ordinary shares, P10 par 1,078,200 600,000
Retained earnings appropriated for
Treasury shares 15,000 30,000
Retained earnings appropriated for
Possible building expansion 114,000 69,000
Unappropriated retained earnings 103,800 336,000
Sales 2,694,000
Gain on sale of trading securities 36,000
Total credits 6,177,000 2,628,000
Additional information:
a) All purchases and sales were on account.

b) Equipment with an original cost of P45,000 was sold for P21,000
c) Selling and general expenses include the following:
Building Depreciation 11,250

Equipment Depreciation 75,750
Bad debt expense 9,000
Interest expense 54,000
d) A six-month note payable for P150,000 was issued in connection with the purchase of
new equipment.
e) The non-current note payable requires the payment of P60,000 per year, plus interest
until paid.
f) Treasury shares were sold for P3,000 more than their cost.
g) During the year, a 30% stock dividend was declared and issued. At that time, there were
60,000 of P10 par ordinary shares outstanding. However, 600 of these were held as
treasury shares at that time and were prohibited from participating in the stock dividend.
Market value of ordinary shares was P50 per share when the stock dividend was
declared.
h) Equipment was overhauled, extending its useful life, at a cost of P18,000. The cost was
debited to Equipment.
Required:
Based on the given data, calculate the following:
1. Net income for 2023.

2. Cash dividends declared and paid during 2023.
3. Proceeds from issuance of ordinary shares during the year.
4. Proceeds from sale of trading securities.
5. Accumulated depreciation of equipment sold.
6. Cash paid for purchase of equipment.
7. Proceeds from sale of treasury shares.
8. Net cash provided by operating activities.
9. Net cash used in investing activities.
10. Net cash provided by financing activities.

Aud3 Chapter 8 11

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Aud3 Chapter 8 11

Uploaded by

Copyright:

Available Formats

Chapter 8

Jan. 1 Balance P2,917,000

What is the corrected amount of retained earnings?

1. What is the total shareholders' equity on December 31, 2023?

2. What is the unappropriated retained earnings balance on December 31, 2023?

1. The statement of financial position will report share premium of

1. What is the ordinary share capital balance on December 31, 2023?

2. The amount of share premium to be reported on Nepal's statement of financial position

1. What is the share premium balance on December 31, 2023?

Cash dividends – preference shares P160,000

1. What is Jordan’s correct net income for 2023?

2. Jan. 16 Declared a cash dividend of 20 centavos per share, payable February 15 to

1. Number of ordinary shares issued and outstanding

1. What is Israel's total shareholders' equity at December 31, 2023?

15 Share capital 8,000

July 1 Sold 15,000 shares at P48.

June 1 Treasury shares 1,600,000

Oman's net income for 2023 was P135,000.

3. Share premium – issuance

4. Share premium – treasury shares

5. Retained earnings (before appropriation for treasury shares)

1. What amount should be assigned to the share warrants issued?

Additional information is as follows:

5. Stock Dividends Payable

Ordinary share capital (PS par, 250,000 shares

2. The balance in the unappropriated retained earnings account at December 31,

3. The total shareholders' equity at December 31, 2023, should be

7. Which of the following statements is correct?

1. Ordinary share capital

2. Share premium - issuance

3. Share premium - treasury shares

4. Retained earnings (before appropriation for treasury shares)

6. Total shareholders' equity

1. Ordinary share capital

2. Share premium - ordinary shares

3. Preference share capital

4. Share premium - preference shares

2. The total share premium - ordinary shares at June 30, 2023, is

3. The unappropriated retained earnings at June 30, 2023, should be

5. The total shareholders' equity at June 30, 2023, should be

The shares will vest at the end of:

The following events occurred:

Based on the preceding information, determine the following:

2. Cumulative compensation expense at the end of year 2

3. Cumulative compensation expense at the end of year 3

5. Share options outstanding at the end of year 2

The following actual events occurred in years 1 to 3:

Year 1 The share price has increased to P24.

1. Compensation expense for year 1

The following actual events occurred:

1. Compensation expense for 2023

2. Compensation expense for 2024

3. Compensation expense for 2025

4. Share options outstanding at the end of 2024

5. Share options outstanding at the end of 2025

Based on the foregoing, answer the following:

1. What amount of compensation expense should be recognized in year 17

2. What amount of compensation expense should be recognized in year 2?

3. What amount of compensation expense should be recognized in year 3?

1. What is the compensation expense for year 1?

2. What is the compensation expense for year 2?

3. What is the compensation expense for year 3?

4. What is the cumulative compensation expense for years 1, 2, and 3?