Question 1

If a company writes an option, it

Accepted Answer

A) pays a fee and gains a right. 
B) charges a fee and gives the holder a right. 
C) charges a fee for handling option transactions. 
D) endorses an option over to another party. 
A) pays a fee and gains a right. 
B) charges a fee and gives the holder a right. 
C) charges a fee for handling option transactions. 
D) endorses an option over to another party.

Question 2

ASPE requires that high/low (redeemable)preferred shares be presented as

Accepted Answer

A) long-term debt. 
B) equity. 
C) either equity or long-term debt. 
D) a contra-asset. 
A) long-term debt. 
B) equity. 
C) either equity or long-term debt. 
D) a contra-asset.

Question 3

Use the following information for questions.
On May 1, 2017, Durban Ltd.issued $500,000, 10 year, 7% bonds at 103.Twenty detachable warrants were attached to each $1,000 bond, which entitled the holder to purchase one of Durban's no par value common shares for $40.At this time, similar bonds without warrants were selling at 96.It was determined that the fair value of Durban's common shares was $35, but the value of the warrants was NOT determinable.Durban is a private corporation that follows ASPE, but does NOT use the residual method.
-On May 1, 2017, Durban should credit Contributed Surplus-Stock Warrants for

Accepted Answer

A) $35,000. 
B) $20,000. 
C) $15,000. 
D) $ 0. 
A) $35,000. 
B) $20,000. 
C) $15,000. 
D) $ 0.

Question 4

Hedge accounting is

Accepted Answer

A) mandatory. 
B) mandatory if specified criteria are met. 
C) optional until December 2018 and mandatory thereafter. 
D) optional. 
A) mandatory. 
B) mandatory if specified criteria are met. 
C) optional until December 2018 and mandatory thereafter. 
D) optional.

Question 5

Use the following information for questions.
On April 1, 2017, Gamma Corp.purchases a call option for $500, which gives Gamma the right to buy 1,000 shares of Delta Inc.for $30 each until December 1, 2017.Delta Inc.shares are currently trading for $30.At June 30, 2017, the options are trading at $4,800 and the shares at $32 each.At December 1, 2017, the options expire with no value.
-At December 1, 2017, Gamma's entry would be

Accepted Answer

The answer of Use the following information for questions.
On April...

Question 6

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.
-What amount of compensation expense should Luanda recognize for calendar 2016?

Accepted Answer

A) $150,000 
B) $187,500 
C) $225,000 
D) $900,000 
A) $150,000 
B) $187,500 
C) $225,000 
D) $900,000

Question 7

Use the following information for questions.
On August 25, 2017, Beta Inc.entered into a forward contract to buy 50,000 Krubles (KRB)for $8,300 Canadian (CAD)on September 5, 2017.On August 31, 2017, 50,000 KRB can be purchased for $8,000 CAD.On September 5, Beta settles the contract but does NOT take delivery of the KRB.
-The entry to record the change in value of the contract on August 31, 2017 is

Accepted Answer

The answer of Use the following information for questions.
On August...

Question 8

A futures contract

Accepted Answer

A) is not exchange traded, therefore does not have a ready market value. 
B) exposes the contracting party to credit risk. 
C) does not require a margin account to be established. 
D) is standardized as to amounts and dates. 
A) is not exchange traded, therefore does not have a ready market value. 
B) exposes the contracting party to credit risk. 
C) does not require a margin account to be established. 
D) is standardized as to amounts and dates.

Question 9

On July 1, 2017, Juba Inc.issued 10,000, $7 non-cumulative, no par value preferred shares for $1,050,000.Attached to each share was one detachable warrant, giving the holder the right to purchase one of Juba's no par value common shares for $30.At this time, the shares without the warrants would normally sell for $1,025,000, while the market price of the warrants was $2.50 each.On October 31, 2017, when the market price of the common shares was $19 and the market value of the warrants was $3.00, 4,000 warrants were exercised.Juba adheres to IFRS.As a result of the exercise of the warrants and the issuance of the related common shares, what journal entry would Juba make?

Accepted Answer

The answer of On July 1, 2017, Juba Inc.issued 10,000,...

Question 10

On June 30, 2015, Kinshasa Corp.granted stock options for 30,000 of its no par value common shares to key employees, at an option price of $36.On that date, the market price of the common shares was $32.The Black-Scholes option pricing model determined total compensation expense to be $720,000.The options are exercisable beginning January 1, 2018, providing the key employees are still employed by Kinshasa at the time the options are exercised.The options expire on June 30, 2019.On January 2, 2018, when the market price of the shares was $42, all 30,000 options were exercised.The amount of compensation expense Kinshasa should have recorded for calendar 2017 is

Accepted Answer

A) $120,000. 
B) $288,000. 
C) $360,000. 
D) $720,000. 
A) $120,000. 
B) $288,000. 
C) $360,000. 
D) $720,000.

Question 11

A fair value hedge protects the company against

Accepted Answer

A) errors in valuation of derivative instruments. 
B) a future transaction that has not yet been recognized. 
C) an existing exposure related to an existing asset or liability. 
D) fluctuations in exchange rates. 
A) errors in valuation of derivative instruments. 
B) a future transaction that has not yet been recognized. 
C) an existing exposure related to an existing asset or liability. 
D) fluctuations in exchange rates.

Question 12

Dividends on term preferred shares, where the shares have been recorded as a liability, should be debited to

Accepted Answer

A) interest expense. 
B) retained earnings. 
C) contributed surplus. 
D) other comprehensive income. 
A) interest expense. 
B) retained earnings. 
C) contributed surplus. 
D) other comprehensive income.

Question 13

The intrinsic value of an option is the

Accepted Answer

A) difference between the price of the underlying security and the strike price. 
B) value due to expectations that the price of the underlying security will rise above the strike price. 
C) minimum value of the option. 
D) option premium value. 
A) difference between the price of the underlying security and the strike price. 
B) value due to expectations that the price of the underlying security will rise above the strike price. 
C) minimum value of the option. 
D) option premium value.

Question 14

Derivatives exist to help companies

Accepted Answer

A) hide financial irregularities. 
B) reduce interest expense. 
C) manage cash flows. 
D) manage risks. 
A) hide financial irregularities. 
B) reduce interest expense. 
C) manage cash flows. 
D) manage risks.

Question 15

During 2017, Khartoum Corp.issued four hundred $1,000 bonds at 104.One detachable warrant, entitling the holder to purchase 15 of Khartoum' common shares, was attached to each bond.At the date of issuance, the market value of the bonds, without the warrants, was 96.The market value of each warrant was $40.Using the relative fair value method, what amount should Khartoum credit to Bonds Payable from the proceeds?

Accepted Answer

A) $416,000 
B) $400,000 
C) $399,360 
D) $384,000 
A) $416,000 
B) $400,000 
C) $399,360 
D) $384,000

Question 16

A forward contract

Accepted Answer

A) is generally exchange traded, therefore has a ready market value. 
B) creates a right but not an obligation. 
C) commits the contracting parties upfront to do something in the future. 
D) has no locked in time period. 
A) is generally exchange traded, therefore has a ready market value. 
B) creates a right but not an obligation. 
C) commits the contracting parties upfront to do something in the future. 
D) has no locked in time period.

If a company writes an option, it

ASPE requires that high/low (redeemable)preferred shares be presented as

Hedge accounting is

A futures contract

A fair value hedge protects the company against

Dividends on term preferred shares, where the shares have been recorded as a liability, should be debited to

The intrinsic value of an option is the

Derivatives exist to help companies

A forward contract

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

The Accounting Information System and Measurement Issues

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Non-Financial Andcurrent Liabilities

Long-Term Financial Liabilities

Shareholders Equity

Earnings Per Share

Income Taxes

Pensions and Other Employee Future Benefits

Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Other Measurement and Disclosure Issues

Filters

Exam 16: Complex Financial Instruments

If a company writes an option, it

ASPE requires that high/low (redeemable)preferred shares be presented as

Hedge accounting is

A futures contract

A fair value hedge protects the company against

Dividends on term preferred shares, where the shares have been recorded as a liability, should be debited to

The intrinsic value of an option is the

Derivatives exist to help companies

A forward contract

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

The Accounting Information System and Measurement Issues

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Investments

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Non-Financial Andcurrent Liabilities

Long-Term Financial Liabilities

Shareholders Equity

Earnings Per Share

Income Taxes

Pensions and Other Employee Future Benefits

Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Other Measurement and Disclosure Issues

Filters