Exam 4: Complex Financial Instruments

Assume that Signh agrees to purchase US$100,000 for C$84,745 on January 15,2013. The exchange rate at year end is US$1 = C$1.20 and the January 15,2013 exchange rate is US$1 = C$1.19. What journal entry is required at January 15,2013?

Which statement best describes the "zero common equity method"?

A company pays $7,000 to purchase futures contracts to buy 200 oz of gold at $1,600/oz. At the company's year-end,the price of gold was $1,625 and the value of the company's futures contracts increased to $10,000. Requirement: Record the journal entries related to these futures.

Which statement best explains the accounting for compound instruments?

A company issued 75,000 preferred shares and received proceeds of $7,000,000. These shares have a par value of $50 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 $55 per share. Shortly after the issuance of the preferred shares,the detachable warrants traded at $5 each. Requirement: Record the journal entry for the issuance of these shares and warrants under IFRS.

On December 15,a company enters into a foreign currency forward to buy €300,000 at C$I.60 per euro in 30 days. The exchange rate on the day of the company's year-end of December 31 was C$1.59: €l. Requirement: Record the journal entries related to this forward contract.

A company had a debt-to-equity ratio of 1.64 before issuing convertible bonds. This ratio included $500,000 in equity. The company issued convertible bonds. The value reported for the bonds on the balance sheet is $180,000 and the conversion rights are valued at $22,000. Requirement: After the issuance of the convertible bonds,what is the value of the debt-to-equity ratio?

AnnuG Inc. granted 200,000 stock options to its employees. The options expire 45 years after the grant date of January 1,2011,when the share price was $23. Employees still employed by the company six years after the grant date may exercise the option to purchase shares at $45 each; that is,the options vest to the employees after five years. A consultant estimated the value of each option at the date of grant to be $2.50 each. Requirement: Record the journal entries relating to the issuance of stock options.

A company issued 105,000 preferred shares and received proceeds of $7,000,000. These shares have a par value of $50 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 $55 per share. Shortly after the issuance of the preferred shares,the detachable warrants traded at $5 each. Requirement: Record the journal entry for the issuance of these shares and warrants under IFRS.

Which is a derivative on the company's own common shares?

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

O'Neil Manufacturing issued 200,000 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 $1.75 each. Requirement: Record the issuance of the stock options.

What is an option?

A company had a debt-to-equity ratio of 1.65 before issuing convertible bonds. This ratio included $450,000 in equity. The company issued convertible bonds. The value reported for the bonds on the balance sheet is $200,000 and the conversion rights are valued at $25,000. Requirement: After the issuance of the convertible bonds,what is the value of the debt-to-equity ratio?

What is a "swap"?

Explain what a "fair value" and "cash flow" hedge is and how each is accounted for under IFRS.

A company located in Canada spends $2,000 to purchase a foreign currency futures contract to buy US$100,000 at C$1.05:US$1.00. The contract matures 110 days later. Under which of the following circumstances could the company consider this future contract to be a fair value hedge for accounting purposes?

Which method is used under ASPE to account for compound instruments?

Explain the meaning of and the difference between the book value and market value to record the conversion of bonds into common shares.

Assume that Millan agrees to purchase US$100,000 for C$84,745 on January 15,2013. The exchange rate at year end is US$1 = C$1.20 and the January 15,2013 exchange rate is US$1 = C$1.19. What journal entry is required at year end?