Pre-Test 12
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BLACKPINKLisaRoseJisooJenniePre-Test 12
Uploaded by
BLACKPINKLisaRoseJisooJenniePre-Test 12
Answer this test wisely and show your solution. (8 Points)
1. Antonia Company grants 150 share options to each of its 500 employees on January 2, 2019 and
exercisable starting December 31, 2022 for a 2-year period. Each grant is conditional upon the
employee working for the entity over the next three years. Antonia estimates that the fair value of
each option is P40. On the basis of weighted average probability, the entity estimates that 20% of
the employees will leave during the three-year period and forfeit their rights to the share options.
During the year 2019, 20 employees left, and Antonia Company still believes that 20% is a fair
estimate of employee departures. During 2020, a further 22 employees left. Due to the low turn-
over as of December 31, 2020, Antonia revises its estimates of employee departures over the
three-year period from 20% to 15%. During 2021, a further 18 employees left. What is the
compensation expense to be recognized by Antonia Company for the share options in 2021?
A. P800,000
B. P900,000
C. P940,000
D. P1,700,000
2. In connection with the share option for the benefit of the key employees, Hairy Company intends
to distribute treasury shares when the options are exercised. These shares were bought in 2016 at
P42 per share. On January 1, 2019, Hairy granted stock options for 10,000 shares at P38 per share
as additional compensation for services to be rendered over the next three years. The options are
exercisable during a four-year period beginning January 1, 2022, by grantees still employed by
the company. Market price of Hairy’s stock was P47 per share at the date of grant. No stock
options were terminated during 2019. What amount should be reported as compensation expense
pertaining to the option in Hairy’s December 31, 2019 income statement?
A. None
B. P30,000
C. P40,000
D. P90,000
3. On January 1, 2019, PC Company grants to an employee the right to choose either 10,000 shares,
i.e. a right to a cash payment equal to the value of 10,000 shares, or 12,000 shares. The grant is
conditional upon the employee remaining in the company’s employ for 3 years. If the employee
chooses the share alternative, the shares must be held for 3 years after vesting date. On January 1,
2019, the company’s share price is P50. At the end of the years 2019, 2020 and 2021, the share
price is P52, P56 and P62, respectively. After taking into account the post-vesting transfer
restrictions, the grant date fair value of the share alternative is P49. The company’s shares have a
nominal value of P10.
Question 1: What is the total amount of expense should the company recognize in 2019?
A. P173,333
B. P202,666
C. P229,333
D. P276,000
Question 2: What is the total amount of expense should the company recognize in 2020?
A. P173,333
B. P202,666
C. P229,333
D. P276,000
Question 3: What is the value of the cash alternative as of December 31, 2020?
A. None
B. P200,000
C. P373,333
D. P560,000
4. On January 1, 2019, Color Company granted 80,000 cash shares appreciation rights to the
executives on condition that the executives remain in its employ for the next three years. The
entity estimates that the fair value of the share appreciation rights at the end of each year in which
a liability exists are as follows:
Year Fair Value
2018 P15
2019 P18
2020 P20
Compensation expense relating to the plan is to be recorded over a three-year period beginning January 1,
2019. What amount of compensation expense should Color Company recognize for the year ended
December 31, 2020?
A. None
B. P400,000
C. P560,000
D. P960,000
