Intermediate accounting by robles empleo 1 answers v2chapter 3 2012

Blazing Red Corporation Correction to the problem: RE balance on December 31, 2012, instead of 2010... Dividends declared 200,000 The total shareholders’ equity may also be obtained by d

PROBLEMS

3-2

MV: Pref – 5,000 x 800=4M Ord – 100,000 x 120 = 12M Allocation:

Pref: 18M x 4/16 = 4.5M Ord: 18M x 12/16 = 13.5M

3-3 (Blazing Red Corporation)

Correction to the problem: RE balance on December 31, 2012, instead of 2010

Shareholders’ Equity

Contributed capital

10% Preference share, cumulative and non-participating, P100 par

30,000 shares authorized; 12,000 shares issued and outstanding P1,200,000 Ordinary share, P10 par, 100,000 shares authorized, 30,000 shares

Subscribed ordinary share, 4,500 shares 45,000 Subscription receivable – Ordinary (43,200) Share premium – Preference 275,000 Share premium –Ordinary 77,000

Retained earnings

Appropriated for treasury share P 15,000 Unappropriated 335,000 350,000

The total amount of P2,048,800 may also be obtained without necessarily preparing the shareholders’ equity in good format (if not required) as follows:

Dividends declared (200,000)

The total shareholders’ equity may also be obtained by determining the balance of the shareholders’ equity accounts, as follows:

Ordinary Share, P10 par (99,000 shares issued and outstanding) P 990,000

Average preference share premium per share

(c) Memo: Effected a 2 for 1 stock split on 100,000 shares P100 par

previously issued and outstanding

Capital structure:

Current preference dividends (9% x 2,000,000 =

180,000; dividends declared were P150,000 only P 150,000

P0

Current preference dividends (9% x 2,000,000) P 180,000

Current preference dividends (9% x 2,000,000) P 180,000

Arrears, beginning P 30,000

Current year 180,000

Total P210,000 P210,000

Current year P180,000

Current dividends:

Arrears, end = 180,000 – 150,000 = 30,000

2012 Preference Ordinary Arrears, beginning P30,000

To ordinary: initial limit 9% x P2,500,000

Current dividends:

Capital structure:

(a) Preference is participating up to 14%

Current dividends:

Excess divided by total par

155,000/4,500,000 = 3.44%, which is

less than the limit of additional 5%;

therefore full excess is prorated

P155,000 x 2M/4.5M

(b) Preference is participating up to 12%

Current dividends:

Excess divided by total par

155,000/4,500,000 = 3.44%, which

exceeds the additional limit of 3%;

therefore, additional to preference is

limited to 3%; remainder goes to ordinary

3% x P2,000,000

P155,000 – 60,000

60,000

95,000

3-10 (Red Mama Company)

50% x 100,000 x 10 = 500,000

3-11 (Red Ball Corporation)

October 31, 2012

10,000 shares x (15 – 14)

December 31, 2012

10,000 shares x (17 – 15)

February 28, 2013

3-12 (Red Chili Company)

450,000/10 x 9/12

Cost P450,000

Acc Deprn 450,000/10 x 6 270,000

Carrying value P180,000

FV(because it is higher) P190,000

180,000 – 160,000 = 20,000

Property Dividends Payable 30,000

190,000 – 160,000 = 30,000 decrease

175,000 – 160,000 = 15,000 increase

3-13 (Red Ribbon Corporation)

Treasury Share Total SHE

Preference Shares Issued

Ordinary Shares

12/31/11 Balances P16,500,000 30,000 100,000

2010 transactions:

a) 4,000 x 280 (1,120,000) (4,000)

12/31/12 balances P7,146,000 26,000 200,000 12,000 P375,000

*P600,000 x 6,000/16,000 = 225,000

Number of ordinary shares outstanding(200,000 – 12,000) 188,000

3-14 (Red Heart Corporation)

Share dividends distributable (4,000 x 100) 400,000

03/01/12 Treasury share (3,000 x 95) 285,000

08/10/12 Issued 82,500 rights to shareholders

entitling holders to purchase 2 additional shares for P125 per share

*Share premium per share 300,000/30,000 = 10

3-15 (Red Carpet Company)

3-16 (Red Hot Company)

(b)

senior employees for the purchase of 30,000 ordinary shares at P50 per share, from January 1 to December 31, 2015

3-17 (Fire Red Company)

01/02/12 Memo: granted 40,000 share options to certain officers for the

purchase of the company’s P100 par ordinary shares at P430 per share

(40,000 x 80) ÷ 4 years

(40,000 x 80) ÷ 4 years

Total accrued compensation expense

Compensation expense-2008 440,000

(34,000 x 80) / 4

3-18 (Red Fox Corporation)

(a) Compensation Expense

(b)

01/01/12 Granted 100 share options to each of its 200 employees to buy

P100 par ordinary share at P220 per share The options are exercisable starting January 1, 2011 provided that the employees are still in the service Options expire on December 31, 2012

3-19 (Cherry Red Company)

(a)

01/01/12 Memo: Granted 10,000 share options for the purchase of P100 par

ordinary shares at P120 per share The options vest once the market price of ordinary shares reached P200, up to Dec 31, 2014 Options expire at the end of 2015

(10,000 x 20) / 3 years

(10,000 x 20) - 66,667

2014 Cash (10,000 x 120) 1,200,000

(b)

01/01/12 Memo: Granted 10,000 share options for the purchase of P100 par

ordinary shares at P120 per share The options vest once the market price of ordinary shares reached P200 Options expire at the end of

2013

(10,000 x 20) / 3 years

for year 2012 through 2014, as given in (b) The recorded share options, however, will be cancelled at the end of 2015, as the options already expire

3-20 (Red Day Company)

01/01/12 Granted 80 share options to each of 400 employees for the

purchase of P100 par ordinary shares at P140 per share Options shall vest in 2012 if earnings increase by 15% or at the end of

2013 if average annual earnings for 2012 and 2013 increased by an average of 12%

400 x 80 x 22 = 704,000 704,000/2 = 352,000

Share Options Outstanding 704,000

expense since the options vest already in 2012

3-21 (Bloody Red Company)

01/01/12 Memo: Issued to its CEO share options for the purchase of ordinary shares at

a strike price of P50 The options are exercisable beginning January 1, 2015 and expire on December 31, 2016 The number of share options will be based

on the level of sales for 2014

15,000 sh x 30 x 1/3

Less: previously accrued 150,000 Compensation expense 150,000

Less: previously accrued 300,000 Compensation expense 240,000

3-22 (Striking Red Corporation)

(a)

10,000 x (140 -120) x 1/3

10,000 x (150 - 120) x 2/3 = 200,000 200,000 – 66,667 = 133,333

10,000 x (165 - 120) = 450,000 450,000 –200,000 = 250,000 (b) (1) Assuming that the rights were exercised on January 1, 2015, when the market

price is P165

(b) (2) Assuming that the rights were exercised on December 31, 2015, when the

market price is P172

12/31/15 Share Appreciation Rights Payable 450,000

3-23 (Red Bull Corporation)

(a) Liability at December 31, 2012 = P89,333

December 31, 2013 = P208,000

December 31, 2014 = P394,000

10,000 x 26.80 x 1/3

10,000 x 31.20 x 2/3 = 208,000 208,000 – 89,333 = 118,667

10,000 x 39.40 = 394,000 394,000 –208,000 = 194,000

3-24 (Ruby Red Company)

Fair value of debt component

2013: 3,600 x 165 x 2/3 = 396,000

2014: 3,600 x 168 = 604,800

(b) Correction to the problem: One executive exercised his right to receive the cash alternative on December 31, 2014, instead of 2012

01/01/12 Granted each of the four executives the right to choose either

1,000 ordinary shares or to receive cash payment equal to 900 shares, conditional upon the completion of three years of service

31,200 / 4 = 7,800 604,800 / 4 =151,200

900 x 3 x (172 – 168)

31,200 x ¾ 3-25 (Red Santa Company)

Appropriated Unappropriated

2012 Transactions

(2) Dividends

(5) 45,000/300,000 = 15% bonus issue

Total retained earnings, (P2,000,000 unavailable

3-26 (Red Hat Company)

Retained earnings balance as of December 31, 2012

Total shareholders’ equity as of December 31, 2012

3-27 (Red, Inc.)

3-28 (Skinny Red Company)

Skinny Red Company Statement of Financial Position Current Assets P 400,000 Liabilities P1,000,000 Land 1,500,000 Ordinary Share 4,000,000 Building 4,625,000 Share Premium 600,000 Accumulated Depreciation ( 925,000)

Total P5,600,000 Total P5,600,000

3-29 Same as 3-27

MULTIPLE CHOICE QUESTIONS Theory

Problems

MC23 C 230,000 + 525,000 + 5,000 = 760,000

MC24 B 480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000

MC26 D (60,000 x 2) – (5,000 x 2) = 110,000

MC27 B 125,000 x 3 = 375,000

MC28 A 375,000 – [(12,000 x 3) + 5,000] = 334,000

MC29 A 20,000 x 9 = 180,000; 180,000/2 = 90,000 x 1/2 = 45,000

MC30 C 600,000 x 5 = 3,000,000

MC31 B 1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000

MC32 A 7,000,000 + (35,000 x 70) = 9,450,000

MC33 B 2,000 x 8 = 16,000

MC34 C 70 – (70/2) = 35

MC35 B (5,000 x 80) – (5,000 x 40) = 200,000

MC36 B 600 x 10 x 60% = 3,600; 6,000 – 3600 = 2,400

MC37 D Interest expense for 2009 = 100,000 x 10% x 9/12 = 7,500

MC38 C 2,120,000 – (2,000 bonds x 1,040) = 40,000

MC39 B 945,000/ 70 = 13,500; 13,500/90,000 = 15%

MC40 D 80,000 + (2,000,000 x 8%) = 240,000; 300,000 – 240,000 = 60,000

MC41 D (3,000,000 x 5% x 2 years) – 100,000 = 200,000 arrears, end

MC42 B (110,000 + 10,000) x 2 = 220,000 issued; 220,000 – (4,000 x 2) = 212,000

MC43 A 24,000+48,000=72,000; 108,000-72,000-24,000 = 12,000

72,000 + (12,000 x 4/6) = 80,000; 24,000 + (12,000 x 2/6) =28,000 80,000/4,000 = 20; 28,000/20,000 = 1.40

MC44 A 8,000,000 – (10,000 x 70) – 1,200,000 = 6,100,000

MC45 A (15 x 2)/5 = 6.00

MC46 B 25,000 x 40 = 1,000,000; 10% x 2,500,000 = 150,000

1,000,000 + 250,000 = 1,250,000 MC47 C (40,000x 105) – (600 x 110) + (400 x 95) + 830,000 – 200,000 =

4,802,000 MC48 C 5,520,000 – 25,000 – 170,000 + 40,000 + 900,000 = 6,265,000

MC49 A (2,000 x 85) – (800 x 42.50) = 136,000

MC50 D [3,000 x (50-20)] / 3 years = 30,000

MC51 C 4,500,000 x 95% = 4,275,000; 4,275,000/3 = 1,425,000

MC52 B 4,500,000 x 94% x 2/3 = 2,820,000; 2,820,000 – 1,425,000=1,395,000 MC53 B (4 x 200 x 300) x ½ = 120,000

MC54 D (90% x 7 x 200 x 300) – 120,000 = 258,000

MC55 B 360,000 – 70,000 = 290,000; 290,000/5,000 = 58

MC56 B 3,150,000/ 50,000 = 63

MC57 B 3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51

MC58 B RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x 3

years = 1,200,000, but dividends are limited to the extent of RE balance of P1,000,000; Thus, equity of ordinary share is 13,500,000 – 5,000,000 – 1,000,000 = 7,500,000; 7,500,000/ 750,000 shares = P10

MC59 C 13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ; 7,200,000/750,000

shares = 9.60 MC60 D (200,000 x 2) + (200,000 x 5) – 950,000 = 450,000