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share-based Payments (Part 1) 671 the 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. frt as 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 he two years to December 31, 20X5. (Adapted) re 10. 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. (Adapted)b. Equi accordance with the plan formula. On this date, by P market price of the stock was P20 a share. Dec Eq In its 20x5 income statement, what amount should Heath report C. by compensation expense relating to the ESOP? tw a. 99,000 b. 155,000 c. 199,000 d. 259,000 d. Eq (AICPA) by 8. On January 2, 2002, Stoner Corporation granted stock options tv to key employees for the purchase of 60,000 shares of the (Adapted) company's common stock at P25 per share. The options are intended to compensate employees for the next two years. The 10. An options are exercisable within a four-year period beginning direc January 1, 2004, by grantees still in the employ of the The company. The market price of Stoner's common stock was P32 anti per share at the date of grant. Stoner plans to distribute up to 20X 60,000 shares of treasury stock when options are exercised. state The treasury stock was acquired by Stoner at a cost of P28 per a share and was recorded under the cost method. Assume that no stock options were terminated during the year. How much b. should Stoner charge to Compensation Expense for the year ended December 31, 2002? C. a. 420,000 b. 210,000 c. 180,000 d. 90,000 (Adapted) d. 9. An entity issues shares as consideration for the purchase of (Adapt 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.ons? options ehsation should d. 7,000 afore payroll taxes, what amount should Wall recognize as expense in 20x1 for the stock purchase plan? a. 1,050,000 b. 900,000 c. 700,000 d. 550,000 (AICEA) employee an On January 1, 20X6, Pall Corp. granted stock options to key P5 par value employees for the purchase of 40,000 shares of the company's ne exercisable ordinary share at P25 per share. The options are intended to mpleted two compensate employees for the next two years. The options are ary 10, 20x8. exercisable within a four-year period beginning January 1, 20X8, by the grantees still in the employ of the company. No options were terminated during 20X6, but the company does have an experience of 4% forfeitures over the life of the stock options. The market price of the common stock was P32 per share at the date of the grant. Pall Corp. used the Binomial imated the pricing model and estimated the fair value of each of the d recognize options at P10. What amount should Pall charge to compensation expense for the year ended December 31, 20X6? 0 a. 160,000 b. 200,000 c. 192,000 d. 153,600 (AICPA) 7. On January 1, 20x5, Heath Corp. established an employee d that the stock ownership plan (ESOP). Selected transactions relating to ost of the the ESOP during 20x5 were as follows: . On April 1, 20x5, Heath contributed P45,000 cash and 7,800 3,000 shares of its P10 par value ordinary stock to the ESOP. On this date, the market price of the stock was P18 a share. ifies the On October 1, 20x5, the ESOP borrowed P100,000 from rages for Union National Bank and acquired 6,000 shares of Heath's utes P2. common stock in the open market at P17 a share. The note market is for one year, bears interest at 10%, and is guaranteed by rmation Heath. On December 15, 20x5, the ESOP distributed 8,000 shares of Heath's common stock to employees of Heath in 1,000core payr when Oak's stock was trading at P21 per share, all the options mmpense in 20 were exercised. What amount of pretax compensation should 2. 1050.0 Oak report in 20X6 in connection with the options? a. 6,000 b. 5,000 c. 2,500 d. 7,000 (AICPA) On Janu Use the following information for the next two questions: employee 3. On January 1, 20X6, Doro Corp. granted an employee an ordinary option to purchase 3,000 shares of Doro's P5 par value compens ordinary share at P20 per share. The option became exercisable exercisab on December 31, 20X7, after the employee completed two 20X8, by years of service. The option was exercised on January 10, 20X8. options v The market prices of Doro's stock were as follows: have an January 1, 20X6 P30 December 31, 20X7 50 options. January 10, 20X8 45 share at pricing n The Black-Sholes-Merton option pricing model estimated the options value of the options at P8 each. For 20X6, Doro should recognize compensa compensation expense of a. 160,000 a. 45,000 b. 12,000 c. 15,000 d. 0 (AICPA) On Janua 4. Assume that Doro's plan is an unqualified plan and that the corporate tax rate is 30%, calculate the after tax cost of the stock Own stock option plan on the income statement. the ESOP a. 8,400 b. 4,800 c. 3,600 d. 7,800 1 On A (AICPA) 3,000 ESOP 5. Wall Corp.'s employee stock purchase plan specifies the following: For every Pl withheld from employees' wages for share. the purchase of Wall's ordinary share, Wall contributes P2. On O The stock is purchased from Wall's treasury stock at market Union price on the date of purchase. The following information comm pertains to the plan's 20x1 transactions: is for Employee withholdings for the year P 350,000 Heath . Market value of 150,000 shares issued 1,050,000 On De . Carrying amount of treasury stock issued (cost) 900,000 of Hesed, the PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL of the share East Co. issued 1,000 shares of its P5 par ordinary share to Howe as compensation for 1,000 hours of legal services performed. Howe usually bills P160 per hour for legal f the share services. However, other lawyers have different bill prices for essentially the same legal service. On the date of issuance, the another. stock was trading on a public exchange at P140 per share. By what amount should the share premium account increase as a result of this transaction? eited, the a. 135,000 b. 140,000 c. 155,000 d. 160,000 (AICPA) he share 2. On June 1, 20X6, Oak Corp. granted stock options to certain key employees as additional compensation. The options were he share for 1,000 shares of Oak's P2 par value ordinary share at an option price of P15 per share. Market price of this stock on other. June 1, 20X6, was P20 per share. The options were exercisable beginning January 2, 20X7, and expire on December 31, 20X9. Oak Corp. used the binomial option pricing model and estimated the value of each option at P7. On April 1, 20X7