PROBLEM 1-4

1. The shareholders equity of Karen Company showed the following data on December 31, 2017: 12% Preference share capital, P30 par, 135,000 shares issued and outstanding 4,050,000 Ordinary share capital, P50 par, 180,000 shares issued and outstanding 9,000,000 Share premium - preference 1,080,000 Share premium - ordinary 3,240,000 Retained earnings 1,395,000 Transactions of the company affecting its equity are summarized chronologically as follows: Issued 27,000 preference shares at P40. 2. Issued 94,500 ordinary shares at P70. 3. Retired 5,400 preference shares at P45. 4. Purchased 13,500 ordinary shares at P80. 5. Split ordinary share two for one (par value reduced to P25). 6. Reissued 13,500 treasury shares at P50. 7. Shareholders donated to the company 9,000 ordinary shares when shares had a market price of P52. One half of these shares were subsequently issued for P54. 8. Dividends were paid at the end of the calendar year on the ordinary shares at P2 per share and on the preference shares at the preference rate. 9. Profit for the year was P2,520,000. Required: Based on the above answer the following: 1. Preference share capital 2. Ordinary share capital 3. Share premium 4. Unappropriated retained earnings 5. Total equity 2. On January 1, Karen Company has 120,000 outstanding ordinary shares. During the year, Karen Company reported a net income of Php 3,000,000 and an income tax rate of 30%%. In addition, Karen Company has 1,800, 10% convertible bonds Php 1,000 face amount. Each bond is convertible into 5 ordinary shares. Required: Based on the above facts, answer the following: How much is the basic earnings per share for the year? 2. How much is the diluted earnings per share assuming the bonds were issued on January 1 and no conversions were made during the year? 3. How much is the diluted earnings per share assuming the bonds were issued on May 1 and no conversion were made during the year? 4. How much is the basic earnings per share for the year assuming the bonds were issued in the previous year and were converted on August 1? 5. How much is the diluted earnings per share for the year assuming bonds were issued in the previous year and were converted on August 1? 3. At the beginning of 2017, Karen Company grants share options to each of its 100 employees working in the sales department. The share options will vest at the end of 2019, provided that the employees remain in the entity's employment, and provided that the volume of sales of a particular product increases by at least an average of 5% per year. If the volume of sales of the product increases by an average of between 5% and 10% per year, each employee will receive 100 share options. If the volume of sales increases by an average of between 10% and 15% each year, each employee will receive 200 share options. If the volume of sales increases by an average of 15% or more, each employee will receive 300 share options. On grant date, Karen Company estimates that the share options have a fair value of P20 per option. Karen Company also estimates that the volume of sales of the product will increase by an average of between 10%% and 15% per year. The entity also estimates, on the basis of a weighted average probability, that 19%% of employees will leave before the end of 2019. By the end of 2017, seven employees have left and the entity still expects that a total of 19 employees will leave by the end of 2019. Product sales have increased by 12% and the entity expects this rate of increase to continue over the next 2 years. By the end of 2018, a six employees have left. The entity now expects only three more employees will leave during 2019. Product sales have increased by 18% The entity now expects that sales will average 15% or more over the three-year period. By the end of 2019, two employees have left. The entity's sales have increased by an average of 16% over the three years. Required: Based on the above, answer the following: 1. Compensation expense in 2017 2. Share premium - share options at the end of 2018 3. Compensation expense in 2018 4. Compensation expense in 2019 4. An entity grants to an employee the right to choose either 5,000 phantom shares, a right to a cash payment equals to the value of 5,000 shares, or 6,000 shares. The grant is conditional upon the completion of three years' service. If the employee chooses the share alternative, the shares must be held for three years after vesting date. At grant date, the entity's share price is P81. At the end of years 1, 2 and 3, the share price is P82, P85 and P90 respectively. The entity does not expect to pay dividends in the next three years. After taking into account the effects of the post-vesting transfer restrictions, the entity estimates that the grant date fair value of the share alternative is P78 per share. Required: Based on the above answer the following: 1. Compensation expense in year 1 2. Compensation expense in year 2 3. Compensation expense in year 3