1) On January 2, 2002, Stoner Corporation granted stock options to key employees for the purchase of 60,000 shares of the company's common stock at P25 per share. The options are intended to compensate employees for the next two years. The options are exercisable within a four-year period beginning January 1, 2004, by grantees still in the employ of the company. The market price of Stoner's common stock was P32 per share at the date of grant. Stoner plans to distribute up to 60,000 shares of treasury stock when options are exercised. The treasury stock was acquired by Stoner at a cost of P28 per share and was recorded under the cost method. Assume that no stock options were terminated during the year. How much should Stoner charge to Compensation Expense for the year ended December 31, 2002?

a. 420,000 b. 210,000 c. 180,000 d. 90,000

2) An entity issues shares as consideration for the purchase of inventory. The shares were issued on January 1, 20X4. The inventory is eventually sold on December 31, 20X5. The value of the inventory on January 1, 20X4, was P3 million. This value was unchanged up to the date of sale. The sale proceeds were P5 million. The shares issued have a market value of P3.2 million. Which of the following statements correctly describes the accounting treatment of this share-based payment transaction?

a. Equity is increased by P3 million, inventory is increased by P3 million; the inventory value is expensed on sale on December 31, 20X5.

b. Equity is increased by P3.2 million, inventory is increased by P3.2 million; the inventory value is expensed on sale on December 31, 20X5.

c. Equity is increased by P3 million, inventory is increased by P3 million; the inventory value is expensed over the two years to December 31, 20X5.

d. Equity is increased by P3.2 million, inventory is increased by P3.2 million; the inventory value is expensed over the two years to December 31, 20X5.

3) An entity grants 1,000 share options to each of its five directors on July 1, 20X4. The options vest on June 30, 20X8. The fair value of each option on July 1, 2004, is P5, and it is anticipated that all of the share options will vest on June 30, 20X8. What will be the accounting entry in the financial

statements for the year ended June 30, 20X5?

a. Increase equity P25,000, increase in expense income statement P25,000.

b. Increase equity P5,000, increase in expense income statement P5,000.

c. Increase equity P6,250, increase in expense income statement P6,250.

d. Increase equity zero, increase in expense income statement zero

PROVIDE SOLUTIONS