Exam 4: Complex Financial Instruments

Assume that on January 15, 2021 Singh agrees to purchase US$100,000 for C$117,000 for delivery on January 15, 2022. The exchange rate at Singh's December 31 year-end is US$1 = C$1.20 and the January 15, 2022 exchange rate is US$1 = C$1.19. What is the foreign exchange gain or loss recognized at January 15, 2022?

A company issued 75,000 preferred shares and received proceeds of $7,000,000. These shares have a benchmark value of $80 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 $90 per share. Shortly after the issuance of the preferred shares, the detachable warrants traded at $5 each. Required: Record the journal entry for the issuance of these shares and warrants under IFRS.

Windy Lake Lodge issued 24,000 at-the-money stock options to its management on January 1, 2021. These options vest on January 1, 2024. Windy Lake's share price was $19 on the grant date and $22 on the vesting date. Estimates of the fair value of the options showed that they were worth $3 on the grant date and $11 on the vesting date. On the vesting date, management exercised all 24,000 options. Windy Lake has a December 31 year-end. Required: Record all of the journal entries relating to the stock options.

Assume that on January 15, 2021 Aero's agrees to purchase US$50,000 for C$52,000 for delivery on January 15, 2022. The exchange rate at Aero's December 31 year-end is US$1 = C$.98 and the January 15, 2022 exchange rate is US$1 = C$.97. What is the foreign exchange gain or loss recognized at January 15, 2022?

What is an option?

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. Required: After the issuance of the convertible bonds, what is the value of the debt-to-equity ratio?

Which statement is correct about accounting for financial instruments?

Which statement best explains the accounting for compound instruments?

What is a "call" option?

Which of the following statements is correct?

A company issued 105,000 preferred shares and received proceeds of $7,000,000. These shares have a benchmark 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 $63 per share. Shortly after the issuance of the preferred shares, the detachable warrants traded at $5 each. Required: Record the journal entry for the issuance of these shares and warrants under IFRS.

Which statement is correct about hedge accounting?

Price Farms granted 290,000 stock options to its employees. The options expire 45 years after the grant date of January 1, 2021, 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. Required: Record the journal entries relating to the issuance of stock options.

How would the exercise of an option, that was part of an initial compound instrument, be recorded?

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

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

What is a "swap"?

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

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

Which statement best describes the "proportional method"?