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Aud Problem 10 15

The document contains several accounting problems related to earnings per share calculations. It provides financial information such as share amounts, income amounts, bond details, and tax rates. The problems require calculating basic and diluted EPS values based on the given financial data.

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Werpa Petmalu
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37 views

Aud Problem 10 15

The document contains several accounting problems related to earnings per share calculations. It provides financial information such as share amounts, income amounts, bond details, and tax rates. The problems require calculating basic and diluted EPS values based on the given financial data.

Uploaded by

Werpa Petmalu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem 9-10

On July 1, 2023, LITHUANIN CO. purchased Michael Co. ten-year, 8% bonds with a face
amount of P1,000,000 for P840,000. The bonds mature on June 30, 2028 and pay interest
semiannually on June 30 and December 31. For the six months ended December 31, 2023,
Lithuanian recorded bond discount amortization of P3,600 using the effective interest method.
What is the amount of interest income to be recognized for the year ended December 31, 2023,
from this long-term investment?

Problem 9-11
On January 3, 2020, NETHERLANDS CORP. purchased a patent for a new consumer product
for P450,000. At the time of purchase, the patent was valid for 13 years. However, the patent’s
useful life was estimated to be only 10 years due to the competitive nature of the product. On
December 31, 2023, the product was permanently withdrawn from the market under
governmental order because of a potential health hazard in the product.
What is the amount that should be charged against income during 2023, assuming amortization is
recorded at the end of each year?

Problem 9-12
The balance of LUXEMBOURG COMPANY’s advertising expense account at December 31,
2023, was P264,000 before any necessary year-end adjustment relating to the following:
1. Included in the P264,000 is the P75,000 cost of product posters for a sales promotional
campaign in January 2024.
2. Radio advertisements broadcast during the December 2023 were billed to Luxembourg
on January 3, 2024. Luxembourg paid the P30,000 invoice on January 15, 2024.
What is the amount of advertising expense that should be reported by Luxembourg in its
December 31, 2024, income statement?

Problem 9-13
Basic and Diluted Earnings Per Share- Bond Conversion
The following information was obtained from the statement of the financial position of
NORWAY, INC. on Dec 31, 2023.

6% convertible 10-year bonds at par P2,000,000


Ordinary Share Capital, P20 par, 110,000 shares 2,200,000
Issued and outstanding
Retained Earnings 950,000

Each P1,000 Bond ca be converted into 40 ordinary shares. On September 30,2024, the bonds
were all converted into ordinary shares. Norway reported net income of P600,000 in 2024. The
income tax rate is 30%.
1. What is Norway’s basic earnings per share for 2024?
A. P3.16 C. P5.07
B. P4.62 D. P5.45
2. What is Norway’s diluted earnings per share for 2024?
A. P2.83 C. P3.16
B. P3.63 D. P3.49

Problem 9-14

Presented below is the shareholder’s equity section of the comparative statements of financial
position of POLAND COMPANY on December 31,2023 and 2022.
Dec 31, 2023 Dec 31,2022
12% Preference shares, P100 Par P 165,000 P 135,000

Share premium – preference 26,800 18,400

Ordinary Shares, P10 par* 821,200 799,200

Share premium – ordinary 128,600 117,600

Share premium – treasury shares 3,600 1,600

Retained earnings 942,400 729,920

Total shareholder’s equity P2,087,600 P1,864,720

*Par value after June 1, 2023, stock split.


Poland had 32,500 ordinary shares outstanding at December 31,2023.

The following shareholder’s equity transaction were recorder in 2022 and 2023

2022

May 1 Sold 4,500 ordinary shares for P24 par value P20.
June 30 Sold 350 preference shares for P124, Par value P100
Aug 1 Issued an 8% share dividend on ordinary shares. The market value was P30 per
share.
Sept 1 Declared cash dividends of 12% on preferences shares and P3 on ordinary shares
Dec 31 Net Income for the year is P632,400

2023

Jan. 31 Sold 1,100 ordinary shares for P30


May 1 Sold 300 preference shares for P128
June 1 Issued a 2-for-1 split of ordinary shares. The par value of ordinary shares was reduced
to P10 per share.
Sept.1 Purchased 500 ordinary shares for P18 to be held as treasury shares
Oct 1 Declared cash dividends of 12% on preference shares and P4 per share on outstanding
ordinary shares.
Nov 1 Sold 500 treasury shares for P22.

1.What is Poland’s basic earnings per share for 2022?


A. P8.25 C. 16.07
B. P8.04 D. 16.49
2. What is Poland’s net income for 2023?
A. P475,960 C. P497,760
B. P456,160 D. P495,760
3. What is Poland’s basic earnings per share for 2023?
A. P5.81 C. P5.82
B. P6.06 D. P6.05

Problem 9-15
The following information was obtained from the audited financial statements of CALIFORNIA,
INC. for the year ended December 31,2023:

Operating Income P3,500,000


Selling, administrative, and other operating expenses 1,800,000
Finance cost 250,000
10% nonconvertible bonds 2,500,000
Income tax rate 30%

Additional data:
a. There were 35,000 ordinary shares outstanding throughout the year
b. On January 1,2023, there were options outstanding to purchase 20,000 ordinary shares at
P30 per share. The average market price during the year was P40 per share.

1. What is California’s basic earnings per share for 2023?


A. P29.00 C. P23.56
B. P31.57 D. P31.42
2. What is California’s diluted earnings per shares for 2023?
A. P 26.93 C. P17.14
B. P25.38 D. P31.42

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