Exam 4: Complex Financial Instruments

Which statement is not correct for the "proportional method"?

Which of the following is correct about financial instruments?

A company issues convertible bonds with face value of $10,000,000 and receives proceeds of $10,500,000. Each $1,000 bond can be converted,at the option of the holder,into 800 common shares. The underwriter estimated the market value of the bonds alone,excluding the conversion rights,to be approximately $8,300,000. Requirement: Record the journal entry for the issuance of these bonds based on IFRS.

Roman Corporation issued call options on 5,000 shares of POMPEI Inc. on October 21,2012. These options give the holder the right to buy POMPEI shares at $35 per share until May 17,2013. For issuing these options,Roman received $15,000. On December 31,2012 (Roman's fiscal year-end),the options traded on the Montreal Exchange for $3.50 per option. On May 17,2013,POMPEI's share price increased to $40 and the option holders exercised their options. Roman had no holdings of POMPEI shares. Requirement: For Roman Corporation,record the journal entries related to these call options.

Which step is not required for hedge accounting under IFRS?

O'Neil Motor Parts issued 110,000 stock options to its employees. The company granted the stock options at-the-money,when the share price was $40. These options have no vesting conditions. By year-end,the share price had increased to $42. O'Neil's management estimates the value of these options at the grant date to be $1.60 each. Requirement: Record the issuance of the stock options.

How would the equity portion of the compound instrument be recorded?

Explain how bonds issued with warrants alleviate adverse selection problem.

Naples Corporation issued call options on 20,000 shares of VESPUS Inc. on October 21,2012. These options give the holder the right to buy VESPUS shares at $35 per share until May 17,2013. For issuing these options,Naples received $60,000. On December 31,2012 (Naples's fiscal year-end),the options traded on the Montreal Exchange for $3.50 per option. On May 17,2013,VESPUS's share price increased to $40 and the option holders exercised their options. Naples had no holdings of VESPUS shares. Requirement: For Naples Corporation,record the journal entries related to these call options.

How would exercise of warrants,that were part of the original compound instrument,be recorded?

Which statement is correct about the accounting for employee stock options?

Which statement best describes the "proportional method"?

What is a "put" option?

How should warrants on the company's own common shares be accounted for?

LMN Company reported the following amounts on its balance sheet at July 31,2013: Liabilities Equity Additional information 1. The bonds pay interest each July 31. Each $1,000 bond is convertible into 5 common shares. The bonds were originally issued to yield 10%. On July 31,2014,all the bonds were converted after the final interest payment was made. LMN uses the book value method to record bond conversions as recommended under IFRS. 2. No other share or bond transactions occurred during the year. Requirement: a. Prepare the journal entry to record the bond interest payment on July 31,2014. b. Calculate the total number of common shares outstanding after the bonds' conversion on July 31,2014. c. Prepare the journal entry to record the bond conversion.

Sorrentino Corporation issued call options on 20,000 shares of BWC Inc. on October 21,2012. These options give the holder the right to buy BWC shares at $35 per share until May 17,2013. For issuing these options,Sorrentino received $20,000. On December 31,2012 (Sorrentino's fiscal year-end),the options traded on the Montreal Exchange for $2.00 per option. On May 17,2013,BWC's share price increased to $38 and the option holders exercised their options. Sorrentino had no holdings of BWC shares. Requirement: For Sorrentino Corporation,record the journal entries related to these call options.

Assume that MAK agrees to purchase US$500,000 for C$550,000 on January 15,2013. The exchange rate at year end is US$1 = C$0.95 and the January 15,2013 exchange rate is US$1 = C$0.97. What journal entry is required at year end?

A company issued 95,000 preferred shares and received proceeds of $6,000,000. These shares have a par value of $48 per share and pay cumulative dividends of 6%. Buyers of the preferred shares also received a detachable warrant with each share purchased. Each warrant gives the holder the right to buy one common share at $35 per share within 10 years. The underwriter estimated that the market value of the preferred shares alone,excluding the conversion rights,is approximately $64 per share. Shortly after the issuance of the preferred shares,the detachable warrants traded at $8 each. Requirement: Record the journal entry for the issuance of these shares and warrants under IFRS.

McMillan Manufacturing issued 60,000 stock options to its employees. The company granted the stock options at-the-money,when the share price was $40. These options have no vesting conditions. By year-end,the share price had increased to $42. McMillan's management estimates the value of these options at the grant date to be $1.10 each. Requirement: Record the issuance of the stock options.

Which of the following is an example of a "future"?