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Father Saturnino Urios University

Accountancy Program
Butuan City

Accounting 520
FQ 002
Anbert Angelo C.Cayna, CPA

BOOK VALUE PER SHARE, EARNINGS PER SHARE, AND SHARE-BASED COMPENSATION
1. The share holders equity on Tunn Company revealed the following balances on December 31, 2012.
12% nonparticipating, noncumulative preference share capital,
par value of P100, 10,000 shares
1,000,000
10% fully participating, cumulative preference share capital,
par value of P100, 25,000 shares
2,500,000
Ordinary share capital, par value of P100, 75,000 shares
7,500,000
The entity plans to declare cash dividends. The entity has not paid a cash or a stock dividend before. There has
been no change in the capital balances since the entity started operations five years ago.
The entity reported the following net income and loss for five years:
2008
1,500,000 loss
2009
1,000,000 loss
2010
500,000 loss
2011
1,750,000 income
2012
6,250,000 income
If the maximum amount available for dividend on December 31, 2012, is declared and paid, what amount shall be
distributed to the ordinary shareholders?
a. 3,750,000
b. 2,910,000
c. 500,000
d. 750,000
19-31 p911 B
2. Culture Company had the following classes of share capital outstanding on December 31, 2012:
Ordinary share capital, P20 par value, 200,000 shares outstanding
4,000,000
Preference share capital, 6% P100 par value, cumulative and fully
participating, 10,000 shares outstanding
1,000,000
Preference dividends have been in arrears for 2010, 2011 and 2012. On December 31, 2012, a total cash
dividend of P900,000 was declared.
What amount should be recognized as dividend payable on the ordinary and preference shareholders,
respectively?
a. 576,000 and 324,000
c. 624,000 and 276,000
b. 672,000 and 220,000
d. 720,000 and 180,000
19-30 p910 C
3. Troy Company provided the following share transactions for the current year:
January
1
Shares outstanding
44,000
February
1
Issued for cash
56,000
May
1
Acquired treasury shares
25,000
August
1
25% stock dividend
Septembe
r
1
Resold treasury shares
10,000
November
1
Issued 3 for 1 share split
What is the weighted average number of shares outstanding for the year?
a. 305,000
b. 307,500
c. 103,750
d. 311,250
20-21 p943 A
4. The following information pertains to Jet Companys outstanding share capital for the current year:
Ordinary share capital, P5 par value
January
1
Shares outstanding
200,000
April
1
2 for 1 share split
200,000
July
1
Shares issued
100,000
Preference share capital, P10 par value, 5% cumulative
January
1
Shares outstanding
40,000
What is the number of shares that should be used in calculating basic earnings per share?
a. 400,000
b. 450,000
c. 500,000
d. 540,000
20-22 p943 B
5. During 2012,Globe Company had the following two classes of share capital issued and outstanding for the entire
year:
200,000 ordinary shares, P10 par
2,000,000
2,000 12% noncumulative preference shares, P100 par
convertible share for share into ordinary share
200,000
The net income for 2012 was P1,800,000 and the income tax rate for the year was 30%.
In the computation of basic earnings per share, what is the amount to be used as earnings?
a. 1,824,000
b. 1,776,000
c. 1,224,000
d. 1,800,000
20-26 p946 D
6. Smart Company is an entity listed on a recognized stock exchange. The statement of comprehensive income for
the year ended December 31, 2012 showed the following:
Profit before tax
5,800,000
Income tax expense
1,500,000
Profit after tax
4,300,000

7.
8.

9.
10.
11.

12.

13.

In addition, the entity paid during the year an ordinary dividend of P400,000 and a preference dividend of
P500,000 on its redeemable preference shares. The entity had P1,000,000 of P5 par value ordinary shares in
issue throughout the year and authorized share capital of P500,000 ordinary shares. What amount should be
reported as basic earnings per share?
a. 21.50
b. 19.00
c. 8.60
d. 7.60
20-16 p940 A
Atlantic Company had the following capital on January 1, 2012.
8,000,00
Ordinary share capital, P10 par value, 800,000 shares
0
12% convertible bonds issued at face value, each
5,000,00
P1,000 bond convertible into 80 ordinary shares
0
May
1
Issued 60,000 ordinary shares for P30 per share
July
1
Purchased 100,000 ordinary shares of treasury at P35 per share.
October
1
Converted P2,000,000 face value of bonds
Decembe
3
r
1
Net income for the year was P9,500,000. The tax rate is 30%.
What amount should be reported as basic earnings per share?
a. 11.45
b. 11.88
c. 10.33
d. 10.80
What amount should be reported as diluted earnings per share?
a. 8.30
b. 8.44
c. 8.34
d. 8.49
21-26 p995 #s 1 and 2 AA
Croatia Company provided the following data for 2012:
Operating revenue
5,600,000
Operating expenses
3,000,000
Income tax rate
30%
Ordinary shares outstanding during the entire year
200,000
On January 1, 2012, there were options outstanding to purchase 40,000 ordinary shares at P25 per share. The
average market price during the year was P20 per share.
The entity reported P2,000,000 of 10% nonconvertible bonds on December 31, 2012. Interest expense is included
in operating expenses.
What amount should be reported as basic earnings per share?
a. 13.00
b. 10.83
c. 7.42
d. 9.10
What amount should be reported as diluted earnings per share?
a. 9.10
b. 8.89
c. 9.58
d. 7.58
21-33 p998 #s 1 and 2 DA
Newton Company had basic earnings per share of P120 for 2012. No conversion or exercise of dilutive securities
took place in 2012. However, possible conversion of convertible preference share would have reduced earnings
per share to P119. The effect of possible exercise of share warrants would have reduced earnings per share by
an additional P2. What is the maximum amount that may be reported as a single presentation of earnings per
share?
a. 120
b. 119
c. 117
d. 121
21-38 p1000 A
On January 1, 2012, Oak Company granted share options to certain key employees as additional compensation.
The options were for 100,000 ordinary share of P10 par value at option price of P15 per share. Market price of
this share on January 1, 2012 was P20. The fair value of each share option on January 1, 2012 is P8. The options
were exercisable beginning January 1, 2012 and expire on December 31, 2014. On December 31, 2012, when
the share was trading at P21, all share options were exercised.
What amount of compensation expense should Oak Company report in 2012 in connection with the share
options?
a. 800,000
b. 500,000
c. 200,000
d. 125,000
17-16 p844
On January 1, 2012, Kamagong Company granted 100 share options each to 500 employees, conditional upon
the employees remaining in the entitys employ during the vesting period. The share option vest at the end of
three-year period. On grant date, each share option has fair value of P30. The par value per share is P100 and
the option price is P120. On December 31, 2013, 30 employees have left and is expected that on the basis of a
weighted average probability, a further 30 employees were leave before the end of three-year period. On
December 31, 2014, only 20 employees actually left and all the share options were exercised on such date. What
amount of compensation expense should be recognized for 2014?
a. 500,000
b. 880,000
c. 380,000
d. 470,000
17-18 p845

14. On January 1, 2012, Nova Company granted share options to each of its 300 employees working in the sales
department. The share options vest at the end of a three-year period provided that the employees remain in the
entitys employ and provided the volume of sales will increase by 10% per year. The fair value of each share
option on grant date is P30. If the sales increase by 10%, each employee will receive 200 share options. If the
sales increase by 15%, each employee will receive 300 share options.
On December 31, 2012, the sales increased by 10%, and no employees have left the entity. On December 31,
2013, the sales increased by 15% and no employees have left. On December 31, 2014, the sales increased by
15%and 50 employees left the entity. What amount of compensation expense should be recognized for 2014?
a. 1,200,000
b. 2,250,000
c. 900,000
d. 450,000
17-21 p846

15. Vicar Company initiated a performance-based employee share option plan on January 1, 2012. The performance
base for the plan is net sales in the year 2014.
The plan provides for share options to be awarded to the employees as a group on the following basis:
Level
Net sales range
Options granted
1
Less than
2,500,000
10,000
2
P2,500,000 - 4,999,999
20,000
3
P5,000,000 - 10,000,000
30,000
4
More than
10,000,000
40,000
The options become exercisable on January 1, 2015. The option exercise price is P200 per share. On January 1,
2012, each option had a fair value of P90. The share market prices on selected dates during 2012-2014 were as
follows:
January
1, 2012
250
December 31, 2012
300
December 31, 2013
350
December 31, 2014
320
Sales each year were as follows:
2012
4,500,000
2013
5,500,000
2014
7,000,000
What amount should be recognized as compensation expense for 2014?
a. 1,200,000
b. 1,800,000
c. 600,000
d. 900,000
17-24 p848
16. On January 1, 2012, Kline Company granted Morgan, its president, compensatory share options to buy 10,000
ordinary shares of P10 par value. The option call for a price of P20 per share and are exercisable in 3 years
following the grant date. Morgan exercised the options on December 31, 2012. The market price of the share was
P60 on January 1, 2012, and P70 on December 31, 2012. The fair value of the share option is P30 on the date of
grant. By what net amount should shareholders equity increase as a result of the grant and exercise of the
options?
a. 200,000
b. 300,000
c. 500,000
d. 700,000
17-29 p851
17. On January 1, 2012, Excelsior Company offered its chief executive rights with the following terms:
Predetermined price on January1, 2012
P100 per share
Number of shares
10,000 shares
Service period
3 years
Exercise date
December 31. 2014
The share appreciation rights are exercised on December 31, 2014. The quoted price per share is as follows:
January 1, 2012'
100
December 31, 2012
118
December 31, 2013
112
December 31, 2014
124
What amount of compensation expense should be recognized for 2013?
a. 160,000
b. 60,000
c. 80,000
d. 20,000
18-12 p875
18. On January 1, 2012, Omega Company granted its chief executive officer (CEO) 80,000 share appreciation rights
for past services. The rights are exercisable immediately and expire on December 31, 2013. On exercise, the
CEO is entitled to receive cash for the excess of the share market price on exercise date over the market price on
grant date. The CEO did not exercise any of the rights in 2012. The market price of the share was P100 on
January 1, 2012 and P120 on December 31, 2013. The CEO exercised the rights on December 31, 2013 when
the market price was P115. What amount should be recognized as gain on reversal of share appreciation rights in
2013?
a. 1,600,000
b. 1,200,000
c. 400,000
d. 0
18-15 p876
On January 1,2012, Planet Company purchased an equipment with a cash price of P2,000,000. The supplier can
choose how the purchase is to be settled.
The choices are 20,000 shares with par value of P50in one years time or a cash payment equal to the market
value of 15,000 phantom shares on December 31, 2012.
At the grant date on January 1, 2012, the market price of each share is P80 and on that date of settlement on
December 31, 2012, the market price of each share is P100.
19. What is the equity component arising from the purchase of equipment with share and cash alternatives?
a. 500,000
b. 400,000
c. 800,000
d. 0
20. What amount of interest expense should be recognized on December 31, 2012 if the supplier has chosen the
cash alternative ?
a. 600,000
b. 400,000
c. 300,000
d. 0
21. What amount should be recognized as share premium on December 31, 2012 if the supplier has chosen the
share alternative?
a. 2,000,000
b. 1,000,000
c. 200,000
d. 800,000
18-17 p878

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