10, ‘THEORIES ‘The pre-emptive right of an ordinary shareholder is the right to a. share proportionately in corporate assets upon liquidation. b. share proportionately in any new issues of stock of the same class. c. receive cash dividends before they are distributed to preference shareholders. d. exclude preference shareholders from voting rights. Gyro Corp. Issued shares which bear the ultimate risks of loss and receive the benefit of success. These shares are not guaranteed dividends nor assets upon dissolution, These shares are considered Ordinary Preference a Yes Yes b. Yes No « No Yes, 4 No No ‘When a corporation issues its ordinary shares in payment for services, the least appropriate basis for recording the transaction is the 2. fair value of the services received b. par value of the shares issued. fair value of the shares issued. 4, Any of these provides an appropriate basis for recording the transaction. Direct costs incurred to sell shares such as underwriting costs should be accounted for as 1. @ reduction of share premium. 2. an expense of the period in which the shares are Issued. 3. an intangible asset ad b 2 <3 da lors ‘Which of the following represents the tozal number of shares that a corporation may Issue under the terms of its charter? ‘a. authorized shares b. issued shares unissued shares di. cutstanding shares Shares that have a fixed per-share amount printed on each share certificate are called 2. stated value shares. b. fixed value shares, uniform value shares, 4d. par value shares. ‘Treasury shares are 2. shares held as an Investment by the treasurer of the corporation. b. shares held as an investment of the corporation. issued and outstanding shares. 4d. issued but not outstanding shares. “Gains” on sale of treasury shares using the cost method should be credited to a. share premium—treasury. bi share ceaital, ¢._retained earings. 4, ather income, Which of the following best describes a possible result of treasury share transactions by a corporation? a. May increase but not decrease retamed earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. 4d. May decrease but not increase net income. ‘The cumulative feature of preference shares 4. limits the amount of cumulative dividends te the par value of the preference shares. b. requires that preference dividends not paid in any year must be made up in a later year before dividends are distributed to ordinary shareholders. © means that the shareholder can accumulate preference sires until it 1s equal te the par value of ordinary shares at which time it can be converted into ordinary shares. 4. enables a preference shareholder to accumulate dividends until they equal the par value of the shares and receive the shares in place of the cash dividends.11, 12, 13, 14. 15. 16. 17. 18. 19. 20. ‘When preference shares share ratably with the ordinary shareholders in any profit distributions beyond the prescribed rate this is known as the 2. Cumulative feature, b. Participating feature. ©. Callable feature. 4, Redeemable feature. A journal entry is not made on the 2. date of decleration: b. date of record. date of payment. 4. An entry is made on all of these dates, Cash dividends are paid on the basis of the number of shares 2. authorized. b. Issued, . outstanding. 4. outstanding less the number of treasury shares. Which of the following statements ebout property dividends fs not true? 2. A property dividend may be in a form af securities of other companies. b. A.property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true. Which dividends do not reduce the total equity? 2. Cash dividends b. Share dividends c. Property dividends 4. None of the above The declaration and issuance of a share dividend 2. Increases ordinary sheres outstanding and increases total equity. b. decreases retained earnings but does not change the total equity. may Increase share premium but does not change total equity. 4. increases retained earnings and increases total equity. Quirk Corporation issued a 25% share cividend of its ordinary shares which had a par value of P10. At what amount should retained earnings be capitalized for the additional shares issued? 3. There should be no capitalization of retained earnings, b. Par value ©. Fair value on the declaration date 4, Feir value on the payment date On the date of declaration of an ordinary share dividend, the entry should net include a, acredit to Share Capital—Ordinary. b. 2 credit to Ordinary Share Dividend Distrioutable. c. a devit to Retained Earnings. 4G. Al of these are acceptable. ‘A feature common to both share split and share dividend is 3. a transfer to earned capital of a corporation b. that there is no effect on total equity. an Increase in total liabilities of a corporation. 4, a reduction in the contributed capital of a corporation, ‘what effect does the issuance of a 2-for~1 share split have on each of the following? Par Value per Share — Retained Earnings a ‘Na effect No effect b. Increase No effect © Decrease No effect a Decrease Decrease‘Assounting Tor share options — equity settied sctled Polo Company, a public limited company, has granted share options to Its employees with a fair value of 12,000,000. ‘The options vast in three years’ ima. The company uses the Monte-Carlo mode! ta estimate the fair value of the options, the number of employees that will vest and the revision of estimates such as the following 2. Grant date ~ January 1, 2048, estimate of employees leaving the company during te vesting period ~ 5%, 5. Revision of astimate ~ Jaquary 1, 2019 ~ estimate of employees ioaving the comeany during the vesting period - 6%. Aetual number of employees teaving the company - December 31, 2020 - 5%. What would be the amount of expense charged in the profit or loss for the year ended December 31, 20207 a. P3,760,000 3,880,000 b. 3,800,000 4. 4,000,000 answers: € 2018 2019. Total Salaries 12,000,000 12,000,000 2 ten vested rights 953% 2496 Vested benefits i1,400,000 7,280,000 Pr, 400,000 » Ratio ua 23 3/2 Value of Compensation 3,600,000 7,520,000 PI, 400,000 Lese: Prior yoar/s none —agonoga = _ 7.520.000 Salaries expense 3,800,000 © 3.720.000 3,880,000 Page 9 of 11 ‘0915-2303713/0908-6567516 - werwresscpereview.com @ ReSA — THe Review ScHool oF ACCOUNTANCY FAR-4218 Week 16: SHAREHOLDERS’ EQUITY & RETAINED EARNINGS Journal entries related to the grant and necognitian of aptions: (Ignore tax effect) December 21. 2018: Salaries expense 3,800,000 ‘Share option outstending 3,800,000 December 34, 2019: Salaries expense 3,720,000 ‘Share option outstanding 3,720,000 December 34. 2020: Salaries expense 3,880,000 ‘Share option outstanding 3,880,000 ‘On January 1, 2019, Mico, Inc. granted 80,000 cash shares appredation rights to the executives an condition that the exechtives 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 lability exists are as follows. 2019, 2020 2023, Fale value PAs Pie P20 Compensation expanse relating to the plan isto be recorded over a three-year period beginning January 1, 2019. Question J: What amount of compensation expense should Mica recognize for the year ended December 31, 20197 ‘2. P240,000 cP 400,000 . P300,000 4. 1,480,000 Answer c Value of Required Year Compensation Accrued Salaries 2019 PIS « 80,000 1,200,000 1/3 P 400,000, 2020 © Pi ~ 80,000 1,440,000 - 2/3 960,000 2021 P20 * 80,000 1,600,000~3/3 1,600,000 ta 2 ant of Comer cation expences choad COU recoonize for the wear ended Deromne 3)b. 300,000 d. P1,440,000 Answer: c Value of Required Year Compensation Accrued Salaries 2019 P15 ~ 80,000 1,200,000 « 1/3 P 400,000 2020 P18 x 80,000 1,440,000 x 2/3 960,000 2021 P20 x 80,000 1,600,000 x 3/3 1,600,000 Question 2: What amount of compensation expense should COU recognize for the year ended December 31, 20207 a. none c. 560,000 b. 400,000 d. 960,000 Answer: C Required Accrued Salaries, December 31, 2020 960,000 Less: Required Accrued Salaries, December 31, 2019 400,000 Compensation Expense -2020 P560,000 Journal entries to record th ion of hare ment December 31, 2019: Salaries expense 400,000 Accrued salaries payable P400,000 December 31, 2020: Salaries expense 560,000 Accrued salaries payable P560,00 December 31, 2021: Salaries expense 640,000 Accrued salaries payable P640,000