Exam 16: Complex Financial Instruments

On January 1, 2015, Tunis Inc.granted stock options for 50,000 of its no par value common shares to key employees, at an option price of $25.On that date, the market price of the common shares was $23.The Black-Scholes option pricing model determined total compensation expense to be $375,000.The options are exercisable beginning January 1, 2018, providing the key employees are still employed by Tunis at the time the options are exercised.The options expire on January 1, 2019.On January 2, 2018, when the market price of the shares was $29 per share, all 50,000 options were exercised.The amount of compensation expense Tunis should have recorded for calendar 2016 is

Lagos Inc.issued bonds with detachable warrants for $5,000,000 (par value).The bonds have a present value of $4,934,400.The fair value of the warrants is determined to be $220,000.Using the relative fair value method, how much of the issue price should be allocated to the warrants?

On March 1, 2017, Rabat Corp.sold $300,000 (par value), 20 year, 8% bonds at 104.Each $1,000 bond was issued with 25 detachable warrants, each of which entitled the bondholder to purchase for $50 one of Rabat's no par value common shares.The bonds without the warrants would normally sell at 95.At this time, the market value of Rabat's common shares was $40 per share and the market value of each warrant was $2.00.Using the relative fair value method, what amount should Rabat record on March 1, 2017 as Contributed Surplus-Stock Warrants?

Use the following information for questions. On July 1, 2017, Casablanca Ltd.issued $6,000,000 (par value), 9%, ten-year convertible bonds at 98 plus accrued interest.The bonds were dated April 1, 2017 with interest payable quarterly on July 1, October 1, January 1 and April 1.If the bonds had NOT been convertible, they would have sold for 96.1 plus accrued interest.The bond discount is amortized on a straight-line basis.On April 1, 2018, $1,200,000 of these bonds were converted into 500 no par common shares.Accrued interest was paid in cash at the time of conversion. -If Interest Payable were credited when the bonds were issued, what is the debit to Interest Expense on July 1, 2017?

Compensation expense resulting from a performance-type plan is generally

An arbitrageur depends on

Derivative instruments

On December 1, 2017, Cairo Ltd.issued 500 of its 9%, $1,000 bonds at 103.Attached to each bond was one detachable warrant entitling the holder to purchase ten of Cairo's common shares.At this time, the market value of the bonds, without the warrants, was 95, and the market value of each warrant was $50.Using the residual method, the amount of the proceeds from the issuance that should be credited to Bonds Payable would be

Use the following information for questions. On January 1, 2016, Luanda Ltd.established a stock appreciation rights plan for its executives.This plan entitles them to receive cash at any time during the next four years for the difference between the market price of its common shares and a pre-established price of $20, on 50,000 SARs.Market prices of the shares are as follows: Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2016. -On December 31, 2018, 8,000 SARs are exercised by executives.What amount of compensation expense should Luanda recognize for calendar 2018?

On December 31, 2015, in order to retain certain key executives, Entebbe Corporation granted them stock options.25,000 options were granted at an option price of $40 per share.Market prices of the shares were as follows: The options were granted as compensation for services to be rendered over a two-year period beginning January 1, 2016.The Black-Scholes option pricing model determined total compensation expense to be $500,000.The amount of compensation expense Entebbe should have recorded for calendar 2017 is

The date on which to measure the compensation in a stock appreciation rights plan is the

Gains on derivatives should

Hedging is the use of

The date on which to measure the compensation element in a compensatory stock option plan (CSOP)is normally the date on which the employee

Which of the following would be classified as a hybrid/compound financial instrument?

Credit risk is the risk that

Johannesburg Corp.has two issues of securities outstanding: no par value common shares and 8% convertible bonds with a par value of $8,000,000.Bond interest payment dates are June 30 and December 31.The conversion clause in the bond indenture entitles the bondholders to receive 40 common shares in exchange for each $1,000 bond.The value of the equity portion of the bond issue is $60,000.On June 30, 2017, the holders of $1,200,000 par value bonds exercise the conversion privilege.The market price of the bonds on that date is $1,100 per bond and the market price of the common shares is $35.The total unamortized bond discount at the date of conversion is $500,000.In applying the book value method, what amount should Johannesburg credit to Common Shares as a result of this conversion?

The three types of market risk are

When convertible debt is converted to common shares, IFRS requires that this is recorded by the

Antigone Corp.issued bonds with detachable common stock warrants.Only the bonds had a known market value.Using the residual method, the value attributable to the warrants is reported as