Reference no: EM132856003

Questions -

Q1. On January 1, 20x1, Monteverde Co. contracted XYZ & Co., CPAs for an outsourced internal audit engagement. ABC Co. has its own internal audit department which performs similar services to those outsourced with XYZ. But due to lack of human resources and the immediate need of management for the internal audit services, XYZ has been contracted. On January 1, 20x1, XYZ & Co. agreed to receive 1,000 shares of ABC with par value per share of 100 in consideration for its services as there is no restriction for equity ownership for CPAs providing internal audit services (unlike for financial audits). The audit field work ended on March 1, 20x1 but the close-out meeting was held on March 10, 20x1. All of the services required under the contract have been substantially rendered as of March 10, 20x1, with the exception of some follow-up procedures required under ISPPIA (International Standards for the Professional Practice of Internal Auditing). The fair values of the shares were 600 on January 1, 20x1, 600 on March 1, 20x1, and 620 on March 10, 20x1 while the fair value of the services remained unchanged at 600,000 over the engagement period. The journal entry on March 10, 20x1 would include a

a) Debit to Professional Fees of 620,000

b) Debit to Professional Fees of 500,000

c) Credit to Share Premium of 400,000

d) Credit to Share Premium of 500,000

Q2. An entity has granted share options to its employees. The total expense to the vesting date of December 31, 20X6, has been calculated as 18 million. The entity has decided to settle the award early, on December 31, 20X5. The expense charged in the income statement since the grant date of January 1, 20X3, had been year to December 31, 20X3, 5 million, and year to December 31, 20X4, 5 million. The expense that would have been charged in the year to December 31, 20X5, was 2.2 million. What would be the expense charged in the income statement for the year December 31, 20X5?

a) 2.2 million.

b) 8 million.

c) 3.9 million.

d) 2 million.

Q3. On January 1, 20x1, ABC Co. grants 1,000 share options to each of its 100 key employees conditional upon each employee remaining in ABC's employ over the next three years. ABC estimates that the fair value of each share option is 15.On the basis of a weighted average probability, ABC Co. estimates on January 1, 20x1 that 20 employees will leave during the three-year period and therefore forfeit their rights to the share options. During 20x1, 2 employees left. The entity revised its estimate of total employee departures over the three-year period from 20 to 15 employees. During 20x2, additional 3 employees left. The entity revised its estimate of total employee departures over the three-year period from 15 to 12 employees. During 20x3, additional 5 employees left. How much is the salaries expense on Dec. 31, 20x3?

a) 400,000

b) 425,000

c) 455,000

d) 470,000

Q4. Geremy Co. acquired equipment from XYZ, Inc. by issuing 2,000 of its 10 par value ordinary shares. The equipment is carried in the books of XYZ, Inc. at 25,000. ABC Co.'s shares have a fair value 14 per share. Assume that the fair value of the equipment cannot be determined reliably. The share capital, as compared to the share capital when the fair value of the equipment is 32,000, would

a) Decrease by 4,000

b) Remain the same

c) Increase by 4,000

d) Increase by 2,000

Q5. On January 1, 20x1, Golf View Village Co. grants 1,000 share options to each of its 180 employees on condition that the employees remain in Golf View's employ until the end of 20x3. The exercise price per share option is 20. The fair value per share option is 80. On December 31, 20x1, Golf View modifies the share option grant by reducing the exercise price to 60. This resulted to an increase in the fair value per option before the modification of 100 to 120 after the modification. What amount of compensation expense shall be recognized in 20x1?

a) 4,800,000

b) 3,600,000

c) 1,800,000

d) 1,200,000

Q6. On January 1, 20x1, METTLE STRENGTH Co. issued share options to its employees. The fair value of the share options on grant date is 2,000,000. The share options vest in three years. METTLE is subject to a tax rate of 30% and is allowed a tax deduction for the intrinsic value of the share options. If the intrinsic value of the share options on December 31, 20x1 is 1,600,000, how should METTLE account for the tax effect of the share options?

a) recognize income tax benefit of 160,000 in profit or loss

b) recognize income tax benefit of 160,000 in equity

c) recognize income tax benefit of 133,336 in equity

d) recognize income tax benefit of 133,336 in profit or loss

Q7. On January 1, 20x1, Franklin Co. issued share options to its employees. The fair value of the share options on grant date is 2,000,000. The share options vest in three years. METTLE is subject to a tax rate of 30% and is allowed a tax deduction for the intrinsic value of the share options. If the intrinsic value of the share options on December 31, 20x1 is 2,400,000, how should METTLE account for the tax effect of the share options?

a) recognize income tax benefit of 40,000 in profit or loss

b) recognize income tax benefit of 40,000 in equity

c) recognize income tax benefit of 166,667 in equity

d) recognize income tax benefit of 166,667 in profit or loss