Exam 14: Complex Financial Instruments

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.

Which statement best describes the "zero common equity method"?

On December 15,a company enters into a foreign currency forward to buy €100,000 at C$I.60 per euro in 30 days.The exchange rate on the day of the company's year-end of December 31 was C$1.55: €l. Requirement: Record the journal entries related to this forward contract.

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

Which method is used under IFRS to account for compound instruments?

Which method is used under ASPE to account for compound instruments?

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

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

Identify the type of hedge under each of the following transactions:

How would exercise of warrants,that were part of the original compound instrument,be recorded?

Which step is not required for hedge accounting under IFRS?

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

What is a "forward"?

A company pays $7,000 to purchase futures contracts to buy 200 oz of gold at $1,600/oz.At the company's year-end,the price of gold was $1,625 and the value of the company's futures contracts increased to $10,000. Requirement: Record the journal entries related to these futures.

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

How are derivative contracts generally accounted for?

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

Assume that Signh agrees to purchase US$100,000 for C$84,745 on January 15,2013.The exchange rate at year end is US$1 = C$1.20 and the January 15,2013 exchange rate is US$1 = C$1.19.What journal entry is required at January 15,2013?

Nappy Lodge issued 15,000 at-the-money stock options to its management on January 1,2012.These options vest on January 1,2015.Nappy's share price was $20 on the grant date and $25 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.Nappy has a December 31 year-end. Requirement: Record all of the journal entries relating to the stock options.

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