Exam 4: Complex Financial Instruments

Breezy Lodge issued 25,000 at-the-money stock options to its management on January 1,2012. These options vest on January 1,2015. Breezy's share price was $18 on the grant date and $25 on the vesting date. Estimates of the fair value of the options showed that they were worth $4 on the grant date and $11 on the vesting date. On the vesting date,management exercised all 24,000 options. Breezy has a December 31 year-end. Requirement: Record all of the journal entries relating to the stock options.

What is a "call" option?

Price Farms granted 290,000 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 Price five 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 $1.50 each. Requirement: Record the journal entries relating to the issuance of stock options.

Which method must be used under IFRS to account for employee stock options?

In the table below,choose the financial instrument that best explains the example on the right side. Types of financial instrument to select from: Financial asset,financial liability,equity,compound instrument,basic option,swap,forward,future,warrant,put option,or call option.

How is the subsequent conversion of bonds into common shares recorded under IFRS?

On January 1,2011,Braeben Inc. granted stock options to officers and key employees for the purchase of 180,000 of the company's no par value common shares at $30 each. The options were exercisable within a five-year period beginning January 1,2013 by grantees still in the employ of the company,and they expire December 31,2017. The market price of Braeben's common share was $20 per share at the date of grant. Using the Black-Scholes option pricing model,the company estimated the value of each option on January 1,2011 to be $2.75. On March 31,2013,30,000 options were exercised when the market value of common stock was $44 per share. The remainder of the options expired unexercised. The company has a December 31 year-end. Requirement: Record the journal entries for Braeben's stock options.

What is a "hedge"?

Which method must be used under ASPE to account for employee stock options?