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Accounting 15 - Quiz 3

Share-Based Compensation & Employee Benefits

Name: Score:

THEORIES (2PTS) PROBLEMS (4PTS)


01. 06. 11. 16. 01. 06. 11.

02. 07. 12. 17. 02. 07. 12.

03. 08. 13. 18. 03. 08. 13.

04. 09. 14. 19. 04. 09. 14.

05. 10. 15. 20. 05. 10. 15.

(01) The defined benefit obligation is the


measure of pension obligation that: (04) Retirement benefit plan investments shall
a. is required to be used for reporting the be carried at
current service cost component of pension a. Fair value
expense b. Historical cost
b. requires pension expense to be c. Amortized cost
determined solely on the basis of the plan d. Value in use
formula applied to years of service to date (05) An entity has several pension plans
and based on existing salary level covering various classes of employees. When
c. requires the longest possible period for may the entity net assets and liabilities of the
funding to maximize the tax deduction various plans?
d. is not sanctioned under international a. When the estimated cash inflows and
financial reporting standards for reporting outflows are similar in pattern.
the current service cost component of b. When the assets and liabilities are both
pension expense financial.
c. Assets and liabilities are always netted.
(02) What is the relationship between the d. Assets and liabilities may be netted when
amount funded and the amount reported for there is a legally enforceable right to use
defined benefit cost? the assets of one plan to settle the
a. Defined benefit cost must equal the obligations of another plan.
amount funded
b. Defined benefit cost is less than the (06) The report of a defined benefit plan shall
amount funded contain:
c. Defined benefit cost is more than th A. A statement showing net assets available for
amount funded benefits, the present value of promised
d. Defined benefit cost may be more than, benefits and the resulting excess or deficit.
equal to, or less than the amount funded B. A statement of net assets available for
benefits including a note disclosing the
(03) In the calculation of pension expense present value of promised benefits.
recognized for a period by an employer a. A only
sponsoring a defined benefit plan, which b. B only
component will not be included? c. Both A and B
a. Actuarial present value of benefits d. Either A or B
attributed by the pension benefit formula
to employee service during current period (07) Short-term employee benefits include all,
b. Interest cost on the projected benefit except:
obligation a. Wages, salaries and social security
c. Excess of accumulated benefit obligation contributions
over the fair value of the plan assets b. Short-term compensated absences
d. Gain or loss on plan settlement
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c. Profit-sharing and bonuses payable in b. In circumstances when the options are
more than twelve months after the end of exercisable within two years for services
the reporting period rendered over the next two years.
d. Nonmonetary benefits, such as medical c. In circumstances when the options are
care, housing, car and free and subsidized granted for prior service and the options
goods are immediately exercisable.
d. In no circumstances is compensation
(08) Employees are each entitled to 20 days of expense immediately recognized.
paid holiday leave per year. Unused holiday
leave cannot be carried forward and does not (13) Which of the following statements in
vest. What is the holiday leave? relation to share options granted to employees
a. A short-term employee benefit in exchange for services is true?
b. A postemployment benefit a. The services received shall be measured
c. Other long-term employee benefit at the fair value of the employees
d. A termination benefit services.
(09) Which of the following statements is true in b. Fair value shall be measured at the date
relation to the recognition of defined benefit the option vest.
cost for other long-term employee benefits? c. Fair value shall be measured at the date of
A. Current service cost, past service cost and exercise.
any gain or loss on settlement are fully d. All of the statements are not true.
recognized through profit or loss. (14) How is compensation expense measured
B. Remeasurements are fully recognized for equity-settled share-based payments?
through profit or loss. a. Use the normal hourly rate of the
a. A only employees.
b. B only b. Measure the intrinsic value of share
c. Both A and B options as the difference between market
d. Neither A nor B price and exercise price at measurement
date.
(10) An employer offered for a short period of c. Measure the fair value of share options
time special termination benefits to some using an option pricing model.
employees. The employees accepted the offer d. Measure the difference between the
which provided for immediate lump sum market price and the fair value of the
payments and future payments at the end of share options.
the next two years. The amounts can be
reasonably estimated. The amount of expense (15) If there is an acceleration of vesting, any
recognized in the current year should include: payment made to the employees on the
a. The lump sum payments and the total of cancelation or settlement of the grant shall be:
the future payments a. Accounted for as repurchase of equity
b. One third of the lump sum payments and interest.
one third of the present value of the future b. Recognized in retained earnings.
payments c. Recognized as component of other
c. Only the lump sum payments comprehensive income.
d. The lump sum payments and the present d. Accounted for as repurchase of equity
value of the future payments interest and any excess payment over the
(11) It is a contract that gives the employees balance of share options outstanding shall
the right, but not the obligation, to subscribe to be recognized as expense.
the entitys share at a fixed of determinable
price for a specified period of time. (16) If share-based payment transaction
a. Share option provides that the employees have the right to
b. Share warrant choose the settlement whether in cash or
c. Share appreciation right shares, the entity is deemed to have issued:
d. Share split a. A compound financial instrument
b. An equity instrument
(12) In what circumstances is compensation c. A liability instrument
expense immediately recognized under a share d. Either an equity instrument or a liability
option plan? instrument but not both
a. In all circumstances.

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(17) If the entity has the choice of settlement in should be amortized over 10 years. Other
a cash and share alternative the entity shall related information is as follows:
account for the instrument initially as: Contribution to the Plan
a. Equity only
b. Liability only (0,720,000
c. Partly equity and partly liability Benefits Paid to Retirees
d. Either equally or liability but not both
(0,900,000
(18) A cash settled share-based payment Decrease in PBO due to changes in actuarial
transaction increases which of the following? assumptions
a. A current asset
b. A noncurrent asset (0,120,000
c. Equity What is the balance of prepaid/accrued benefit
d. A liability cost account on December 31, 2007? ___
(19) What is the measurement date for a share- Use the following information for the next two
based payment to employees that is classified items
as a liability? The Cloak Corporation received the following
a. The service inception date report from its actuary at the end of the year:
b. The grant date 01/01/0 01/31/0
c. The settlement date 6 6
d. The end of reporting period Unrecognized past service 500,000 450,000
cost
(20) For share appreciation rights, the Accumulated benefit 6,000,0 6,400,0
measurement date for computing compensation obligation 00 00
is the: Fair Value of pension plan 5,800,0 6,276,0
a. Date the rights mature assets 00 00
b. Date the share reaches a predetermined Actuarial net gain 800,000 ?
amount Benefits paid during the 680,000
c. Date of grant year
d. Date of exercise Contribution during the 520,000
year
Current service cost 495,000
(01) Zee Company provided the ff. information Expected rate of return 10%
concerning its defined benefit plan in its Settlement rate 12%
memorandum records on January 1, 2007: Ave. working lives of 20
Fair Value of Plan Assets employees years

(5,100,000 (02) What is the amount of net benefit expense


Unamortized Past Service Cost to be charged against income for the year
2006? ___
(0,210,000
Unrecognized Actuarial Loss (03) What is the amount of Prepaid/Accrued
Pension for the year 2006? ___
(0,610,000 (04) On January 1, 2014, Angelus Company
Projected Benefit Obligation
adopted defined benefit pension plan. The
plans service cost of P300,000 was fully funded
(4,500,000) at the end of 2014. Prior service cost was
Prepaid/Accrued Benefit Cost funded by a contribution of P120,000 in 2014.
Amortization of prior service cost was P48,000
(1,410,000 for 2014. What is the amount of Angelus
prepaid pension cost at December 31, 2014?
During the current year, the entity determined ___
that its Current service cost was 600,000 and (05) Norlene Company has granted share
the interest cost is 10%. The expected return options to employees. The total compensation
was 10% but the actual return was 12%. Past expense to the vesting date of December 31,
service cost and any actuarial gain or loss 2013 has been calculated at P8,000,000. The
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entity has decided to settle the award early on 01/01/1 12/31/1 12/31/1
December 31, 2012. The compensation 3 3 4
expense charged since the date of grant on PV of Benefit 4,650,0 4,980,0 6,670,0
January 1, 2010 was P2,000,000 for 2010 and Obligation 00 00 00
FV of Plan Assets 4,250,0 5,200,0 5,740,0
P2,100,000 for 2011. The compensation 00 00 00
expense that would have been charged in the Settlement Rate 11% 11%
year 2012 was P2,200,000. Unrecognized Net 0 (720,00 (800,00
G/L 0) 0)
What would be the compensation expense for Expected Rate of 8% 7%
2012 if the share options are not exercised but Return
instead the entity paid P7,500,000 to the Purple estimates that the average remaining
employees? ___ service life is 16 years Purples contribution was
P630,000 in 2014 and benefits paid were
(06) The following data relate to Anatomy P470,000.
Companys defined benefit pension plan as of
December 31, 2014: (08) How much shall be the actual return on
PV of Benefit Obligation, 01/01/14 2,000,0 plan assets in 2014? ___
00
PV of Benefit Obligation, 12/31/14 2,400,0 (09) How much shall be the deferred gain on
00 plan assets in 2014? ___
Plan Assets, at Fair Value, 01/01/14 1,700,0 (10) Mickey Company granted share options to
00 certain key officers as additional compensation
Plan Assets, at Fair Value, 12/31/14 2,200,0 on January 1, 2012. The options were for 1,000
00 ordinary share at P30 par value at an option
Deferred Gain (Loss), 01/01/14 450,00 price of P35 per share. Market price of this
0 share on January 1, 2012 was P40. The fair
Actuarial Loss on Plan Assets during 200,00 value of each share option on January 1, 2012 is
2014 0 P28. The options were exercisable beginning
Actuarial Gain on Obligation during 150,00 January 1, 2012 and expire on December 31,
2014 0 2013. On April 1, 2012, when Mickeys share
Average Working Lives of Employees 20 was selling at P41, all share options were
years exercised. What amount of compensation
expense should Mickey report in 2012 in
What net amount of pension liability Anatomy connection with the share options? ___
Company should report on its Dec. 31, 2014
financial statement? ___ (11) On January 2, 2014, X Company grants 50
shares each to 400 employees, conditional
(07) At December 31, 2014, Crop Corporation upon the employees remaining in the
pension plan administrator provided the companys employ during the vesting period.
following information: The shares will vest at the end of 2014 if the
Fair Value of Plan Assets 5,000,0 companys earnings increased by more than
00 15%; or at the end of 2015 if the earning
Present Value of Benefit Obligation 4,300,0 increased by an average of 12% over the two-
00 year period; or at the end of 2016 if the
Unrecognized Actuarial Net Loss 200,00 earnings increased by an average of 10% over
0 the three-year period. The shares have a fair
Present Value of Available Future value of P25 on January 2, 2014, which is equal
Refunds and Reduction in Future 800,00 to the share price on the grant date.
Contributions 0
At the end of 2014, earnings had increased by
What is the amount pension asset that should 13% and 20 employees have left and the
be shown on Crops December 31, 2014 company expects that earnings will continue to
balance sheet? ___ increase at a similar rate in 2015 and expects
to vest in 2015. The company also expects, on
Use the following information for the next two the basis of weighted average of probability,
items that a further 20 employees will leave during
The following information relates to the pension 2015.
plan for the employees of Purple Company:
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At the end of 2015, earnings increased by only
9% and therefore shares do not vest at the end (14) On January 2, 2011 Slimmer Company
of 2015. Also, 15 employees have left the offered its top management share appreciation
company in 2015 but expect that 10 employees right with the following terms:
will leave the company in 2016. The company Number of shares 50,000 shares
expects that earnings will continue to increase Service period 3 years
at similar rate. Exercise date December 31, 2013

At the end of 2016, earning increased by 9% The share appreciation is to be paid upon
and 5 employees have left the company in exercise. The share appreciation right is to be
2016. What amount of remuneration expense exercised on December 31, 2013. The company
should the company recognize in its December estimated the fair value of the share
31, 2016 profit or loss? ___ appreciation rights as follows:
2011 2012 2013
(12) Rose Company has granted share options Fair Value P24 P60 P70
to its employees with a fair value of P6,000,000.
The options vest in three years. The Monte- What amount should Summer Company charge
Carlo model was used to value the options. On to compensation expense for the year ended
January 1, 2011, which is the grant date, the December 31, 2013 as a result of the share
estimate of employees leaving the entity during appreciation right? ___
the vesting period is 5%. On December 31,
22012, the estimate of employees leaving (15) On January 1, 2013, Belle Company
before vesting date is revised to 6%. On granted its president 20,000 share appreciation
December 31, 2013, only 5% of the employees rights for past services. These rights are
actually left the entity. What is the exercisable immediately and expire on January
compensation expense for 2013? ___ 1, 2015. On exercise, the president is entitled
to receive cash for the excess of the share
(13) On December 31, 2010, Revelation market price on the exercise date over the
Company granted some of its executives market price on the grant date. The president
options to purchase 15,000 shares of the did not exercise any of the rights during 2013.
companys P50 par ordinary share at the option The market price of Belles share was P30 on
price of P60 per share. The total compensation January 1, 2013 and P45 on December 31,
expense would be P300,000 under the fair 2013. Determine the compensation expense
value method. The intrinsic value of the that should be recorded for 2013 as a result of
compensation which considered tax deductible the share appreciation rights. ___
is P400,000. The options become exercisable on
January 2, 2012 and represent compensation
for executives 2011 services. Income tax rate is
35% for all years. What is the impact of
Revelations shareholders equity for the year
ended Dec. 31, 2011 as a result of this
transaction? ___