Exam 14: Complex Financial Instruments

McMillan Manufacturing issued 60,000 stock options to its employees.The company granted the stock options at-the-money,when the share price was $40.These options have no vesting conditions.By year-end,the share price had increased to $42.McMillan's management estimates the value of these options at the grant date to be $1.10 each. Required: Record the issuance of the stock options.

Explain what a "fair value" and "cash flow" hedge is and how each is accounted for under IFRS.

Which of the following is correct about financial instruments?

A company issues convertible bonds with face value of $7,000,000 and receives proceeds of $8,500,000.Each $1,000 bond can be converted,at the option of the holder,into 100 common shares.The underwriter estimated the market value of the bonds alone,excluding the conversion rights,to be approximately $7,300,000. Required: Record the journal entry for the issuance of these bonds based on IFRS.

On August 15,2018,Madison Company issued 10,000 options on the shares of MVC (Middefield Valley Corporation).Each option gives the option holder the right to buy one share of MVC at $70 per share until March 16,2019.Madison received $100,000 for issuing these options.At the company's year-end of December 31,2018,the options contracts traded on the Montreal Exchange at $9.50 per contract.On March 16,2019,MVC shares closed at $63 per share,so none of the options was exercised. Required: Record the journal entries related to these call options.

Which of the following is an example of a "swap"?

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

What is hedging?

Explain how convertible bonds alleviate moral hazard.

LMN Company reported the following amounts on its balance sheet at July 31,2019: Liabilities Equity Additional information 1.The bonds pay interest each July 31.Each $1,000 bond is convertible into 5 common shares.The bonds were originally issued to yield 10%.On July 31,2019,all the bonds were converted after the final interest payment was made.LMN uses the book value method to record bond conversions as recommended under IFRS. 2.No other share or bond transactions occurred during the year. Required: a.Prepare the journal entry to record the bond interest payment on July 31,2019. b.Calculate the total number of common shares outstanding after the bonds' conversion on July 31,2019. c.Prepare the journal entry to record the bond conversion.

A company had a debt-to-equity ratio of 1.65 before issuing convertible bonds.This ratio included $450,000 in equity.The company issued convertible bonds.The value reported for the bonds on the balance sheet is $200,000 and the conversion rights are valued at $25,000. Required: After the issuance of the convertible bonds,what is the value of the debt-to-equity ratio?

What is an option?

Give 4 examples of cash flow hedges:

Which statement is correct about the accounting for employee stock options?

Amel Company issues convertible bonds with face value of $7,000,000 and receives proceeds of $7,500,000.Each $1,000 bond can be converted,at the option of the holder,into 40 common shares.The underwriter estimated the market value of the bonds alone,excluding the conversion rights,to be approximately $7,200,000. Required: Record the journal entry for the issuance of these bonds.

A company had a debt-to-equity ratio of 1.55 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. Required: After the issuance of the convertible bonds,what is the value of the debt-to-equity ratio?

What are the similarities and differences between forwards and futures?

What is a "warrant"?

Which of the following is correct regarding a call option?

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