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

Securities issued as debt but intended by the issuing company to be exchanged for shares by the investor prior to maturity are called:

The crucial aspect of debt on the financial statements is:

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.

VB Ltd.raises $150,000 by issuing a financial instrument that pays interest at a rate of 8% per year to the investor.At the end of the fourth year,the financial instrument is retired for $155,000.If the financial instrument is treated as debt then:

Embedded derivatives are those that can be detached and separately sold from their host contracts.

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000. Assume that the holders of $300,000 face value bonds exercise their conversion privilege on 1 January 20X5,when market value of the common shares is $65.Prepare the journal entry to record the conversion,using the book value method.

An investor purchases a $10,000 bond convertible into common shares at a price of $50.How many shares are available for conversion?

WB Ltd.issues a $200,000,6%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

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 allocation of the proceeds to bonds using the proportional method was:

On the statement of cash flows,a hybrid financial instrument should be:

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000. Prepare a Journal entry to record the issuance of the bonds on 1 January 20X2.

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

Convertible debt that is convertible to a variable number of shares at the investor's option will normally be classified as a liability.

Securities issued as debt,but intended by the issuing corporation to be exchanged for shares by the investors at some time prior to maturity,are known as "hybrid securities".

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

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

For each type of financial instrument,the reporting enterprise should disclose:

To be classified as retractable preferred shares,the cash repayment must either be contractually required or at the option of the investor.

Primary securities that have both debt and equity characteristics are called:

JMR Ltd.sold $350,000 of 5% (annual interest payments)convertible 5 year bonds at par.The market interest rate on the sale date was 7%.Each $1,000 bond was convertible into 20 shares of KER Ltd.no-par value common shares on any interest date after the end of the first year from the date of issuance.Using IFRS,prepare the journal entry at issuance using the proportional method.Assume that the option pricing model placed a value of $73,675 for the conversion feature.