Exam 4: Statements of Financial Position and Changes in Equity; Disclosure Notes

When a bond matures,an investor will cash it in if the market price of the convertible bond is higher than the conversion price of the bond.

A company issues a convertible bond.Management can essentially force conversion as long as:

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:

On January 1,2014,ABC Incorporated issued $10,000,000 face amount of 8%,10 year,subordinated convertible debentures at face value in a private placement.The debentures pay interest annually,in cash,on 31 December.The bonds were issued for $12 million,and that the market rate was 6%: Assume that on January 1^st,2015,the shares were converted when the market price of the share was $102.Prepare the required journal entry.

JMR Ltd.issued $300,000 of 7%,8 year,non-convertible bond with detachable stock purchase warrants.KER Corp.purchased the entire issue.Each $1,000 bond carries 20 warrants.Each warrant entitles KER to purchase one common share for $20.The bond issue sells for 104 exclusive of accrued interest.Shortly after issuance,the warrants trade for $5 each and there was no market value for the bond.In the journal entry,the amount of the payable for the bond is:

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?

Hedge accounting is often performed to minimize any accounting mismatch between the hedged and hedging items and is strictly voluntary.

All of the following are characteristics of stock rights except:

In order to determine if,in substance,a complex financial instrument is equity,the answer should be no to all of the following except:

KIM Corp.owned a major business building in a small Canadian city.The building has a $1,155,000 mortgage that is held by a Canadian financial institution (FI).KIM Corp.has had recent cash flow problems,in part,due to the low vacancy rates in the business buildings.Interest is 15 months in arrears and totals $132,000.After discussions with the FI,they agree to a financial reorganization that results in the FI accepting $800,000 from the shareholders who agree to inject this amount of cash into the business. Required: Prepare the journal entry to record the exchange.What is this called?

Which of the following are requirements for hedge accounting?

Match the brief description with the terms.

List the criteria determining whether an asset is a financial asset.Give an example of a financial asset and a non-financial asset.

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?

Under ASPE,convertible debt must always be treated as debt in its entirety.

On January 1^st,20x12,ABC Inc.agrees to a futures contract to buy 1,000 shares of DEF Inc.for $20 per share in 60 days.The current value of the shares on January 1,20x12 is $22 per share. The broker requires a 20% margin payment.The fair value of the shares is $24 per share on January 31^st,20x12 and $18 per share on February 29^th,20x12. Required: Prepare all relevant journal entries.

On January 1,2014,ABC Incorporated issued $10,000,000 face amount of 8%,10 year,subordinated convertible debentures at face value in a private placement.The debentures pay interest annually,in cash,on 31 December.The bonds are convertible into 50 common shares for each $1,000 of the bonds' face value. Part A: Prepare Journal entries to record the issuance of the bonds on January 1,2014.Assume that the principal will not be repaid.Instead,shares will be issued to the holders of the debentures in addition to the cash interest paid.In other words,conversion is deemed to be mandatory. Part B: Prepare Journal entry to record the interest payment on the first interest date of 31 December 2014.Also record the related equity transfer.

When stock rights are issued to current shareholders,it may require more than one such right to later acquire one additional share of the stock covered by the rights.

An option is:

JMR Ltd.issued $100,000 of 8%,8 year,non-convertible bond with detachable stock purchase warrants.KER Corp.purchased the entire issue.Each $1,000 bond carries 10 warrants.Each warrant entitles KER to purchase one common share for $20.The bond issue sells for 104 exclusive of accrued interest.Shortly after issuance,the warrants trade for $5 each and the bonds were quoted at 103 ex-warrants.The market value of the bonds and warrants using the proportional method was: