FINANCIAL ACCOUNTING AND REPORTING PMFULGENCIO

STOCKHOLDERS’ EQUITY

A. Astoria Corporation had the following stockholders’ equity account balances at December 31,
2016
Preference shares P1,800,000
Share premium-preference share 90,000
Ordinary shares 5,150,000
Share premium-ordinary share 3,500,000
Retained earnings 4,000,000
Net unrealized loss on Investment-OCI 245,000
Treasury –ordinary shares 270,000

Astoria’s preference and ordinary shares are traded on the over the counter market. At December
31, 2016, Astoria had 100,000 authorized shares for P100 par, 10% cumulative preference share
and 3,000,000 authorized share of no-par ordinary share with a stated value of P5 per share.

Transactions during 2017 and other information relating to the stockholders’ equity accounts
were as follows:
a. On January 10, 2017, Astoria formally retired all of the 30,000 shares of its treasury ordinary
shares and had them revert to unissued basis. The treasury share had been acquired on
January 20, 2015, the shares were originally issued at P10 per share.
b. Astoria owned 10,000 shares of Crystal Cove Inc. ordinary share purchased on 2016 for
P750,000. The Crystal Cove share was included in Astoria’s trading securities portfolio. On
February 15, 2017, Astoria declared a dividend in kind of one share of Crystal Cove for every
one hundred shares of Astoria ordinary shares held by shareholders of record on February 28,
2017. The dividend in kind was distributed on March 12, 2016.
c. On April 1, 2017, 1,000,000 share rights were issued to the ordinary shareholders permitting
the purchase of one new share of ordinary share in exchange for four rights and P11 cash. On
April 25, 2017, 840,000 share rights were exercised when the market price of Astoria’s
ordinary share was P13 per share. Astoria issued new shares to settle the transaction. The
remaining 160,000 rights were not exercised and thus expired.
d. On January 1, 2014, Astoria granted share options to employees for the purchase of 100,000
shares of the company’s ordinary share at P8 per share which was also the market price. The
employees exercised 80,000 options for P8 per share, on July 1, 2015, the market price of
Astoria’s ordinary share was P8 per share. Astoria used new shares to settle the transaction.
e. On December 12, 2017, Astoria declared the yearly cash dividend on preference share,
payable on January 14, 2018, to shareholders of record on December 31, 2017.
f. After year-end adjustment, the net unrealized loss on Investment-OCI securities account had
a debit balance of P135,000 at December 31, 2017.
g. On January 1, 2018, before the accounting records were closed for 2017, Astoria became
aware that the rent income for the year ended December 31, 2016 was overstated by
P500,000. The after tax-effect on the 2016 net income was P275,000. The appropriate
correcting entry was recorded the same day.
h. After correcting the rent income for 2017 was P2,600,000.
Based on the above and the result of your audit, determine the following as of December 31, 2017:

1. Ordinary shares
2. Share premium from ordinary shares (including share premium from treasury)
3. Total contributed capital
4. Retained earnings
5. Total stockholders’ equity
 B. The following information has been taken from the Accumulated profit ledger accounts of Boracay
Inc.
a. Total net income since incorporation P3,200,000
b. Total cash dividends paid 150,000
c. Carrying value of the company’s equipment
Declared as property dividend 600,000
d. Proceeds from sale of donated stocks 150,500
e. Total value of stock dividends distributed 250,000
f. Gain on treasury share transaction 375,000
g. Unamortized premium on bonds payable 413,200
h. Appropriated for plant expansion 700,000
i. Loss on treasury share reissue 515,000
j. Share premium in excess of par from issued shares 215,000
k. Share issuance expense 45,000
l. Appropriated for remaining treasury shares at
Cost P50/share 1,000,000

Additional notes:
 The equipment declared as dividends had a recoverable value of P450,000 as of the date of
declaration.
 The stock dividends distributed was based on a 10% share dividend declared on 100,000, P25 par
value shares issued. The market value of shares on the date of declaration was at P42 per share.
 The only transactions affecting the treasury shares were those described in item f and item i.

1. How much should be the correct debit to retained earnings for the property dividends?
2. How much should be the correct debit to retained earnings for the share dividends?
3. How much is the correct balance of the accumulated retained earnings unappropriated
account?
4. What is the balance of the share premium from treasury stock transactions?
5. The necessary net adjustment involves an adjustment to share premium in the amount?

SHARE BASED PAYMENTS

1. On January 1, 2015, an entity granted 15,000 share options to its employees. The share
options will vest at the end of three years provided the employees remain in the service.

The option price is P60 and the entity’s share price on the date of grant is also P60. The par
value of each share is P50. At the date of grant, the entity concluded that the fair value of the
share options cannot be reliably determined. The options can be exercised within three years
from the vesting date.

All share options vested at the end of three years and no employees left during the three-year
vesting period. The share prices and the number of share options exercised at year end are
as follows:

Share price Options exercised

2015 63

2016 66

2017 75

2018 88 5,000

2019 100 7,500

2020 90 2,500
 a. What are the amounts of compensation expense for the years 2016 and 2017,
respectively?

b. How much is the compensation expense for the year 2018?

2. On January 1, 2014, Crowne granted 80,000 cash share appreciation rights to the executives
on condition that the executives remain in its employ for the next three years.

The entity estimates that the fair value of the share appreciation rights at the end of each year in
which a liability exists are as follows:

2014 2015 2016

Fair value P15 P18 P20

Compensation expense relating to the plan is to be recorded over a three-year period beginning
January 1, 2014.

What amount of compensation expense should Crowne recognize for the year ended December
31, 2014, 2015 and 2016?

Write the journal entries to record the recognition of cash-settled share-based payments.

3. On January 1, 2015, Tides Company granted to each of its 5 executives the right to choose
either 2,000 ordinary shares or to receive cash payment equal to 1,800 shares. The grant is
conditional upon the completion of three year service. The entity estimates that the value of
the share alternative on January 1, 2015 is P320 per share. Tides’ ordinary share has a par
value of P220.

The following table shows the fair value of Tides’ ordinary share: Jan 1, 2015- P350; Dec 31,
2015- P362; Dec 31, 2016- P370; Dec 31, 2017- P378; Dec 31, 2018- P390.

Two executives exercised their right to receive cash alternative on December 31, 2017, two
executives chose to receive the ordinary shares on December 31, 2018 and the last executive
opted to receive cash alternative on the same date.

a. Determine the amount assigned to debt and equity on January 1, 2015.

b. Compute the amount charged to compensation expense during the years 2015, 2016, 2017,
and 2018 as a result of the foregoing.

c. Prepare all entries relating to the above during the years 2015 through 2018.

BASIC AND DILUTED EARNINGS PER SHARE

1. Marx Company had the following ordinary share activity in 2017:

January 1- 500,000 ordinary shares outstanding

March 1- issued new 60,000 ordinary shares
June 1- ordinary shares was split 2 for 1
November 1- Reacquired 48,000 ordinary shares

Marx Company had 100,000 shares of P20par, 10%, cumulative and convertible preference share
outstanding throughout 2017. Each preference share is convertible into one ordinary share. During the
year 2017, the company reported profit of P2,930,000.

a. What is the average ordinary shares outstanding?

b. What is the basic earnings per share?
c. What is the diluted earnings per share?

2. Karl Company reported the following data at December 31, 2017:

Profit for the year 2017: P3,464,000; ordinary share, P100 par- P2,500,000; 10% Bonds Payable
(issued prior to 2017)- P1,000,000

The bonds are convertible into ordinary shares in the ratio of 10 ordinary shares for each P1,000
bond. The income tax rate is 30%

a. What is the basic earnings per share?

b. What is the diluted earnings per share?
c. Assuming that the 10% bonds payable were issued on July 1, 2017 (not prior to 2017), what is the
diluted earnings per share?