PROBLEM 1:
The Retained Earnings account of Merry Exams Morty Company shows the following debits and
credits for the year 2020:
RETAINED EARNINGS
Date Description Debit Credit Balance
Jan. 1 Balance 726,400
a) Loss from fire 5,250 721,150
b) Write-off of goodwill 52,500 668,650
c) Stock dividends distributed 140,000 528,650
d) Loss on sale of equipment 48,300 480,350
Officers’ compensation related to income of prior
e) 325,500 154,850
periods – accrual overlooked
Loss on retirement of preferred shares at more than
f) 70,000 84,850
issue price
g) Paid in capital in excess of par 129,500 214,350
h) Stock issuance expenses (related to letter g) 10,000 204,350
i) Stock subscriptions defaults 8,470 212,820
Gain on retirement of preferred stock at less than
j) 25,900 238,720
issue price
k) Gain on early retirement of bonds 15,050 253,770
l) Gain on life insurance policy settlement 10,500 264,270
m) Correction of prior period error 50,050 314,320
Effect of change in accounting policy – from FIFO to
n) 100,000 414,320
weighted average
o) Dividends payable 25,000 389,320
p) Loss on sale of treasury stock 20,000 369,320
q) Proceeds from sale of donated stock 40,000 409,320
r) Appraisal increase in land 250,000 659,320
s) Appropriated for property acquisition 100,000 559,320
The entry to correct the Retained Earnings account will include:
Group of answer choices
Debit to Retained Earnings, P50,050. Debit to Retained Earnings, P25,900.
Credit to Retained Earnings, P10,000. Credit to Retained Earnings, P48,300.
Credit to Retained Earnings, P100,000. Debit to Retained Earnings, P100,000.
Credit to Retained Earnings, P25,000. Debit to Retained Earnings, P129,500.
Credit to Retained Earnings, P325,500 Credit to Retained Earnings, P140,000.
Debit to Retained Earnings, P8,470. Debit to Retained Earnings, P10,500.
Credit to Retained Earnings, P20,000. Credit to Retained Earnings, P70,000.
Debit to Retained Earnings, P15,050. Debit to Retained Earnings, P250,000.
Debit to Retained Earnings, P40,000. 2.Based on the information on the
previous item (Merry Exams Morty
Company), how much is the adjusted
Credit to Retained Earnings, P5,250. balance of Retained Earnings as of
December 31, 2020?
Credit to Retained Earnings, P52,500.
3.Based on the information on Christmas
Past Morty Corporation, how much is the
compensation expense for the year 7. Based on the information on
ended December 31, 2018? Christmas Past Morty Corporation, the
entry to record the exercise of share
4.Based on the information on Christmas options shall require a credit to Share
Past Morty Corporation, how much is the Premium at:
compensation expense for the year
ended December 31, 2019? 8. Based on the information on
Christmas Past Morty Corporation, the
5. Based on the information on entry to record the expiration of share
Christmas Past Morty Corporation, how options shall require a credit to Share
much is the compensation expense for Premium at:
the year ended December 31, 2020?
6. Based on the information on
Christmas Past Morty Corporation, what
is the balance of Share Options
Outstanding as of December 31, 2019?
PROBLEM 2
Use the following information for the next four items:
On December 31, 2017, Christmas Future Morty, Inc. issued share appreciation rights to 50 of
its employees. The rights will vest at the end of 3 years provided the employees remain with the
company and provided further that the average revenue growth over the same period is at 10%.
The following are the approved terms of the said rights:
If the average revenue growth is 10 to 15%, each employee will receive 10,000 share
appreciation rights.
If the average revenue growth is 16 to 20%, each employee will receive 20,000 share
appreciation rights.
If the average revenue growth is more than 20%, each employee will receive 30,000
share appreciation rights.
On the grant date, each share appreciation right is determined to have a fair value of P15.00,
Christmas Future Morty expects an average growth rate of 12.5% during the three-year vesting
period and that 10 employees will ultimately resign before the vesting period ends.
By the end of 2018, the actual revenue growth rate of the year is 10%. Christmas Future Morty
expects that 10 employees will leave by the end of 2019. The fair market value of the share
appreciation right on this date is P15.00.
By the end of 2019, the actual revenue growth rate for the year is 15%. Christmas Future Morty
still expects that 10 employees will leave by the end of 2019. The fair market value of the share
appreciation right on this date is P16.75.
By the end of 2020, the actual revenue growth rate for the year is 25% and 13 employees have
left the company. The fair market value of the share appreciation right on this date is P18.50.
Note: Round off amounts to the nearest peso.
Based on the above information, answer the following:
9.Based on the information on Christmas Future Morty, Inc., how much is the
compensation expense for the year ended December 31, 2018?
2,000,000
10.Based on the information on Christmas Future Morty, Inc., how much is the
compensation expense for the year ended December 31, 2019?
2,466,667
11. Based on the information on Christmas Future Morty, Inc., how much is the
compensation expense for the year ended December 31, 2020?
16,068,333
12. Based on the information on Christmas Future Morty, Inc., how much is the liability
for the share appreciation rights as of December 31, 2020?
20,535,000
PROBLEM 3
Use the following information for the next six items:
On January 1, 2018, Christmas Present Morty Company granted to an employee the right to
choose either shares or cash payment. The choices are as follows:
Share alternative: equal to 30,000 shares with a par value of P40.
Cash alternative: cash payment equal to the market value of 35,000 shares.
The grant is conditional upon completion of three years' service. On grant date (January 1,
2018), the share price is P42. After taking into account the effect of vesting restrictions,
Christmas Present Morty has estimated that the fair value of the share alternative to be P60.
The following are the other relevant share prices:
December 31, 2018 - P45
December 31, 2019 - P60
December 31, 2020 - P75
Note: Round off amounts to the nearest peso.
Based on the information, answer the following:
13.What is the total fair value of the equity component on January 1, 2018 as a result of
the share and cash alternatives?
330,000
14.What is the compensation expense for the year ended December 31, 2018?
635,000
15.What is the compensation expense for the year ended December 31, 2019?
985,000
16.What is the compensation expense for the year ended December 31, 2020?
1,335,000
17.If the employee selected the cash alternative, what is the share premium to be
recognized on December 31, 2020?
330,000
18.If the employee selected the share alternative, what is the share premium to be
credited from the issuance of shares?
1,755,000
PROBLEM 4
Use the following information for the next four items:
Christmas Tree Morty Inc. began operations in January 2018 and reported the following results
for each of its 3 years of operations.
2018: P260,000 net loss
2019: P40,000 net loss
2020: P400,000 net loss
At December 31, 2020, Christmas Tree Morty Inc. share capital accounts were as follows.
6% Preference share capital, P100 par, 5,000 shares P500,000
Ordinary share capital, P1 par, 750,000 shares 750,000
Share premium - preference 100,000
Share premium - ordinary 250,000
Christmas Tree Morty Inc. has never paid a cash or share dividend. There has been no change
in the share capital accounts since Christmas Tree Morty began operations.
The preference shares have a liquidating value of P106 per share.
Note: Round off per share information to the nearest centavo.
Based on the information above, answer the following:
19.Compute the book value per share of preference capital assuming that the preference
shares are noncumulative.
20.Compute the book value per share of ordinary capital assuming that the preference
shares are noncumulative.
21.Compute the book value per share of preference capital assuming that the preference
shares are cumulative.
22.Compute the book value per share of ordinary capital assuming that the preference
shares are cumulative.
PROBLEM 5
Use the following information for the next ten items:
The Christmas Bonus Morty Corporation declared and paid cash dividends for the last three
years as follows: 2018 - P2,500,000; 2019 - P3,500,000; 2020 - P6,500,000. No dividends were
paid for two years prior to 2018. The capital structure of the company for the last three years
were as follows: 12% Preference share capital, P100 par, 100,000 shares issued and
outstanding; and Ordinary share capital, P10 par, 500,000 shares issued and outstanding.
Note: Round off per share information to the nearest centavo. Round off amounts to the nearest
centavo.
Based on the information above, answer the following:
23.How much is the dividends paid to the preference shareholders in 2018, if the
preference shares are noncumulative and nonparticipating?
24.What is the dividend per share on the ordinary shares in 2018, if the preference shares
are noncumulative and nonparticipating?
25.How much is the dividends paid to the preference shareholders in 2019, if the
preference shares are cumulative but nonparticipating?
26.What is the dividend per share on the ordinary shares in 2019, if the preference shares
are cumulative but nonparticipating?
27.How much is the dividends paid to the preference shareholders in 2018, if the
preference shares are noncumulative but fully participating?
28.What is the dividend per share on the ordinary shares in 2018, if the preference shares
are noncumulative but fully participating?
29.How much is the dividends paid to the preference shareholders in 2019, if the
preference shares are cumulative and fully participating?
30.What is the dividend per share on the ordinary shares in 2019, if the preference shares
are cumulative and fully participating?
31.How much is the dividends paid to the preference shareholders in 2020, if the
preference shares are noncumulative but participating up to an additional 8%?
32.What is the dividend per share on the ordinary shares in 2020, if the preference shares
are noncumulative but participating up to an additional 8%?
PROBLEM 6
Use the following information for the next three items:
On January 1, 2019, Christmas Gift Morty Corporation grants 100 cash share appreciation
rights (SARs) to each of its 200 employees, on condition that the employees remain on its
employ for the next three years.
During 2019, 14 employees left. The entity estimates that a further 24 will leave during 2020 and
2021.
During 2020, 10 employees left and the entity estimates that a further 8 will leave during 2021.
During 2021, 6 employees left. At the end of 2021, 60 employees exercised their SARs, 40
employees exercised their SARs at the end of 2022 and the remaining employees exercised
their SARs at the end of 2023.
The entity estimates the fair value of the SARs at the end of each year in which a liability exists
as shown below. At the end of 2021, all SARs held by the remaining employees vest. The
intrinsic value of the SARs at the date of exercise (which equal to the cash paid out) at the end
of 2021, 2022 and 2023 are also shown below:
Fair value Intrinsic value
December 31, 2019 30
December 31, 2020 32
December 31, 2021 36 35
December 31, 2022 42 40
December 31, 2023 46
Based on the information above, answer the following:
33.How much is the compensation expense for 2021?
247,600
34.How much is the compensation expense for 2022?
58,000
35.How much is the compensation expense for 2023?
28,000
PROBLEM 7
Use the following information for the next six items:
At the beginning of 2018, Christmas Past Morty Corporation grants share
options to each of its 100 employees working in the sales department. The
share options will vest at the end of 2020, provided that the employees
remain in the entity’s employ, and provided that the volume of sales of a
particular product increase by at least an average of 5% per year. If the
volume of sales of the product increases by an average of between 5% and
10% per year, each employee will receive 100 share options. If the volume of
sales increase by an average of between 10% and 15% each year, each
employee will receive 200 share options. If the volume of sales increase by
an average of 15% or more, each employee will receive 300 share options.
Each employee may purchase one P25 par value ordinary share at P35 for
each option held and is exercisable up to the end of 2021.
On grant date, Christmas Past Morty estimates that the share options have a
fair value of P20 per option. Christmas Past Morty also estimates that the
volume of sales of the product will increase by an average of between 10%
and 15% per year. The entity also estimates, on the basis of a weighted
average probability, that 19% of employees will leave before the end of
2020.
By the end of 2018, seven employees have left and the entity still expects
that a total of 19 employees will leave by the end of 2020. Product sales
have increased by 12% and the entity expects this rate to increase over the
next two years.
By the end of 2019, a further six employees have left. The entity now
expects only three more employees will leave during 2020. Product sales
have increased by 18%. The entity now expects that sales will average 15%
or more over the three-year period.
By the end of 2020, a further two employees have left. The entity’s sales
have increased by an average of 16% over the three-year period.
69 employees exercised their vested options on June 11, 2021. As of
December 31, 2021, there were no additional employees who exercised their
vested options.
Note: Round off amounts to the nearest peso.
Based on the above information, answer the following questions:
How much is the compensation expense for the year ended
December 31, 2018? 259,000
How much is the compensation expense for the year ended
December 31, 2019? 329,000
How much is the compensation expense for the year ended
December 31, 2020? 304,500
What is the balance of the Share Options Outstanding at the
end of 2019?
The entry to record the exercise of share options shall
require a credit to Share Premium at:
The entry to record the expiration of share options shall
require a credit to Share Premium at:
