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

Options are ONLY for the purpose of buying or selling financial instruments.

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.

Assume that on January 1^st,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 1^st,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 provide the necessary journal entries assuming that Jane: a.Elects to receive shares and b.Opts for the cash payment,allowing her options to expire.

Why do companies issue retractable preferred shares?

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

Why would a corporation issue retractable preferred share in a private placement rather than a normal debt arrangement?

At the end of 2014,interest on a perpetual loan is paid to the holder.The perpetual debt is shown as an equity instrument.Based on the above the interest is:

Derivatives may be described as:

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 equity then:

An equity item is classified as debt in the financial statements and dividend payments were shown on the financial statements.For income tax purposes,the amounts will not be tax deductible.

The president of XBC was granted a stock option for 1,000 common shares.On the grant date,the option price was $40 and the market value was $38 per share.Give the entry to record the option at the date of the grant.

When interest is repayable to investors at a fixed amount per share,the financial instrument in question would be considered debt.

If it is the company's option to repay the debentures through the issuance of common shares,the principal component of the bonds is debt.

At the end of 2014,interest on a perpetual loan is paid to the holder.The perpetual debt is shown as an equity instrument.Based on the above the interest is:

Elizabeth Corp.owned a major business building in a small Canadian city.The building has a $1,345,000 mortgage that is held by a Canadian financial institution (FI).Elizabeth 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 $145,000.After discussions with the FI,they agree to a financial reorganization in that they accept $50 preferred shares at a value of $1,490,000,retractable in 15 years time at book value.The shares have first claim on the proceeds of the business building,should it be sold. Required: Prepare the journal entry to record the exchange.

Induced conversions of convertible debt arise when the debtor offers a "sweetener" to encourage the creditor to promptly convert the debt.

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

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.

The measurement date of a compensatory stock option must precede the date of grant.

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%: Prepare Journal entries to record the issuance of the bonds on January 1,2014.