Question 1

Under IFRS, forfeitures which occur under a stock-based compensation structure are accrued throughout the vesting period.

Accepted Answer

A) True 
 B)False  False

Question 2

An escalation clause will normally cause preferred shares to trade as debt.

Accepted Answer

A) True 
 B)False  False

Question 3

If a financial instrument is determined to be in substance equity, what are the reporting implications?

Accepted Answer

Any interest payments will be treated as dividend payments with retained earnings being reduced-in other words the interest does not flow through the income statement.The original proceeds will be recorded as equity.

Question 4

Which of the following is an example of a financial asset?

Accepted Answer

A) Prepaid expenses 
B) accounts receivable 
C) Inventory 
D) Capital assets 
A) Prepaid expenses 
B) accounts receivable 
C) Inventory 
D) Capital assets

Question 5

JKC initiated a stock option plan for its three top executives.The plan provided that each executive would receive 6,000 options that would enable each one to purchase 600 shares at the option price.The option price was set at 10 percent below market price at the first exercise date.The options could be exercised after the executives remained as employees of the company for 3 more years.The market price of the shares on the date that the options were granted was $10 per share.The amount of compensation expense the company incurred for the three executives due to the option plan was:

Accepted Answer

A) $0 
B) $600 
C) $8,100 
D) $3,000 
E) Cannot be determined from the information provided. 
A) $0 
B) $600 
C) $8,100 
D) $3,000 
E) Cannot be determined from the information provided.

Question 6

Assume that a company wishes to grant stock options to a supplier in exchange for services rendered.The company chose to value this exchange at the going market rate charged by the suppliers' competitors.This is an example of a Level 2 Fair Value Hierarchy application.

Accepted Answer

A) True 
 B)False

Question 7

General characteristics of convertible bonds that will be converted include all of the following except:

Accepted Answer

A) the company will no longer have to repay the principal amount of the bonds. 
B) management fully intends that the conversion privilege will eventually be attractive to the investors. 
C) the investors will convert at or before maturity date. 
D) the market price of the shares will drop below the conversion price. 
A) the company will no longer have to repay the principal amount of the bonds. 
B) management fully intends that the conversion privilege will eventually be attractive to the investors. 
C) the investors will convert at or before maturity date. 
D) the market price of the shares will drop below the conversion price.

Question 8

A non-compensatory stock option plan means that:

Accepted Answer

A) Top executives are given shares in the company. 
B) Any employee can purchase shares at a discount from the prevailing market price. 
C) No shares are given but shareholders are allowed to be purchased on the open market. 
D) None of these answers are correct. 
A) Top executives are given shares in the company. 
B) Any employee can purchase shares at a discount from the prevailing market price. 
C) No shares are given but shareholders are allowed to be purchased on the open market. 
D) None of these answers are correct.

Question 9

Assume that on January 1st, 20x1, Jane Smith is awarded units in an existing Phantom Stock Plan whereby she can receive either 20,000 common shares or a cash payout equivalent to the value of 15,000 shares at the time.
The shares are worth $5 each upon the inception of the plan.The value of the shares rose to $8 and
$10 each at the end of 20x1 and 20x2 respectively.
Option valuation models valued the company's stock at $6 per share on January 1st, 20x1.
Jane is her company's only full-time employee currently eligible under this plan and she has signed a non-competition agreement which essentially forbids her from seeking employment elsewhere.
Required:
Provide the company's journal entries to record compensation expense for 20x1 and 20x2 and provid the necessary journal entries assuming that Jane:
a.Elects to receive shares and
b.Opts for the cash payment, allowing her options to expire.

Accepted Answer

20x2: @#IMG-DLM& a.Jane receiv

Question 10

KER Corp.issued 150,000 rights allowing the holder to acquire common shares in 3 years' time at an acquisition price of $25 per share-the current market price.It takes 10 rights to acquire each share.The corporation received $30,000 for the rights.Assuming that 100,000 rights are exercised when the market price was $30, and the balance expire, prepare journal entries at: announcement date, issuance date, exercise date and expiration date.

Accepted Answer

1.Announcement Date:

Question 11

Management of a company that has convertible bonds outstanding would likely force conversion of its bonds of the fair market value of the shares upon conversion exceeds the fair value of the bonds.

Accepted Answer

A) True 
 B)False

Question 12

The proceeds of any bonds sold with detachable stock warrants must be pro-rated between the bonds and the warrants.

Accepted Answer

A) True 
 B)False

Question 13

JMR Corp.grants their top executive an option for 1,000 shares.The option price is $30 per share.Prepare the journal entry if the current market price is $40 per share.What would happen if instead the market price was $25?

Accepted Answer

Market price = $40 @#IMG-DLM& Market pri

Question 14

A stock option plan is a compensatory plan if:

Accepted Answer

A) The employee must work for the company until retirement. 
B) It involves a cost to the grantor. 
C) The employee must report the option on the employee's current tax return. 
D) The employee must have worked for the company for one year. 
A) The employee must work for the company until retirement. 
B) It involves a cost to the grantor. 
C) The employee must report the option on the employee's current tax return. 
D) The employee must have worked for the company for one year.

Question 15

When bonds are converted, it is first necessary to update any accounts relating to bond premium or discount, accrued interest, and foreign exchange gains and losses on foreign currency denominated debt.

Accepted Answer

A) True 
 B)False

Question 16

Stock Appreciation Rights (SARS)earned by employees may be settled by issuing (choose the best answer):

Accepted Answer

A) Shares 
B) Cash 
C) Promissory notes 
D) Cash or Shares 
A) Shares 
B) Cash 
C) Promissory notes 
D) Cash or Shares

Question 17

Explain why a company would want to classify a financial instrument as debt instead of equity?

Accepted Answer

Many companies want to classify financia

Question 18

Perpetual Debt is accounted for as equity.

Accepted Answer

A) True 
 B)False

Question 19

On January 1st, 20x1, 20,000 units of stock appreciation rights were granted to JKL Inc's 200
employees, each of which received 100 units which accrue evenly over the following three years.The rights allow the employees to receive cash compensation for any stock price increase on December 31st, 20x3, if they are still with the company at that time.
The cash to be distributed is the difference between the fair value of the share and the reference price of $5 per share.Cumulative retention rates are expected to be 80% and 70% for 20x1 and 20x2 respectively.Twenty employees forfeited their rights in 20x1 and thirty forfeited their rights in 20x2.On December 31st, 20x3 there were 150 employees working for JKL Inc.
The following data applies to JKL's SARS plan:
     Required:
Prepare the required journal entries for 20x1, 20x2 and 20x3 to record the compensation expense and ultimate cash payout related to the company's SARS plan.

Accepted Answer

Although not required, student

Question 20

A company issues a financial instrument for $40,000 paying interest of $4,000 per year.How would the interest be treated if the instrument was determined to be equity?

Accepted Answer

If the financial instrument was classifi

Under IFRS, forfeitures which occur under a stock-based compensation structure are accrued throughout the vesting period.

An escalation clause will normally cause preferred shares to trade as debt.

If a financial instrument is determined to be in substance equity, what are the reporting implications?

Which of the following is an example of a financial asset?

Assume that a company wishes to grant stock options to a supplier in exchange for services rendered.The company chose to value this exchange at the going market rate charged by the suppliers' competitors.This is an example of a Level 2 Fair Value Hierarchy application.

General characteristics of convertible bonds that will be converted include all of the following except:

A non-compensatory stock option plan means that:

Management of a company that has convertible bonds outstanding would likely force conversion of its bonds of the fair market value of the shares upon conversion exceeds the fair value of the bonds.

The proceeds of any bonds sold with detachable stock warrants must be pro-rated between the bonds and the warrants.

JMR Corp.grants their top executive an option for 1,000 shares.The option price is $30 per share.Prepare the journal entry if the current market price is $40 per share.What would happen if instead the market price was $25?

A stock option plan is a compensatory plan if:

When bonds are converted, it is first necessary to update any accounts relating to bond premium or discount, accrued interest, and foreign exchange gains and losses on foreign currency denominated debt.

Stock Appreciation Rights (SARS)earned by employees may be settled by issuing (choose the best answer):

Explain why a company would want to classify a financial instrument as debt instead of equity?

Perpetual Debt is accounted for as equity.

A company issues a financial instrument for $40,000 paying interest of $4,000 per year.How would the interest be treated if the instrument was determined to be equity?

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

Filters

Exam 15: Financial Instruments: Complex Debt and Equity

Under IFRS, forfeitures which occur under a stock-based compensation structure are accrued throughout the vesting period.

An escalation clause will normally cause preferred shares to trade as debt.

If a financial instrument is determined to be in substance equity, what are the reporting implications?

Which of the following is an example of a financial asset?

Assume that a company wishes to grant stock options to a supplier in exchange for services rendered.The company chose to value this exchange at the going market rate charged by the suppliers' competitors.This is an example of a Level 2 Fair Value Hierarchy application.

General characteristics of convertible bonds that will be converted include all of the following except:

A non-compensatory stock option plan means that:

Management of a company that has convertible bonds outstanding would likely force conversion of its bonds of the fair market value of the shares upon conversion exceeds the fair value of the bonds.

The proceeds of any bonds sold with detachable stock warrants must be pro-rated between the bonds and the warrants.

JMR Corp.grants their top executive an option for 1,000 shares.The option price is $30 per share.Prepare the journal entry if the current market price is $40 per share.What would happen if instead the market price was $25?

A stock option plan is a compensatory plan if:

When bonds are converted, it is first necessary to update any accounts relating to bond premium or discount, accrued interest, and foreign exchange gains and losses on foreign currency denominated debt.

Stock Appreciation Rights (SARS)earned by employees may be settled by issuing (choose the best answer):

Explain why a company would want to classify a financial instrument as debt instead of equity?

Perpetual Debt is accounted for as equity.

A company issues a financial instrument for $40,000 paying interest of $4,000 per year.How would the interest be treated if the instrument was determined to be equity?

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

Filters