Question 1

What is a "put" option?

Accepted Answer

A) A contract that gives the holder the right to sell an instrument at a pre-specified price. 
B) A contract that is derived from some other underlying quantity,index,asset or event. 
C) A contract that gives the holder the right to acquire an instrument at a pre-specified price. 
D) A contract that gives the holder the right to buy or sell something at a specified price.

Question 2

A company issues convertible bonds with face value of $5,000,000 and receives proceeds of $6,500,000.Each $1,000 bond can be converted,at the option of the holder,into 80 common shares.The underwriter estimated the market value of the bonds alone,excluding the conversion rights,to be approximately $6,300,000.
Requirement:
Record the journal entry for the issuance of these bonds based on IFRS.

Accepted Answer

The answer of A company issues convertible bonds with face...

Question 3

Assume that Ariel agrees to purchase US$500,000 for C$550,000 on January 15,2013.The exchange rate at year end is US$1=C$0.95 and the January 15,2013 exchange rate is US$1=C$0.97.What journal entry is required when the contract is initiated?

Accepted Answer

A) 0 
B) $65,000 loss. 
C) $75,000 gain. 
D) $75,000 loss.

Question 4

Explain how bonds issued with warrants alleviate adverse selection problem.

Accepted Answer

The answer of Explain how bonds issued with warrants alleviate...

Question 5

Windy Lake Lodge issued 24,000 at-the-money stock options to its management on January 1,2012.These options vest on January 1,2015.Windy Lake's share price was $19 on the grant date and $22 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.Windy Lake has a December 31 year-end.
Requirement:
Record all of the journal entries relating to the stock options.

Accepted Answer

The answer of Windy Lake Lodge issued 24,000 at-the-money stock...

Question 6

A company issued 105,000 preferred shares and received proceeds of $6,100,000.These shares have a par value of $50 per share and pay cumulative dividends of 6%.Buyers of the preferred shares also received a detachable warrant with each share purchased.Each warrant gives the holder the right to buy one common share at $35 per share within 10 years.
The underwriter estimated that the market value of the preferred shares alone,excluding the conversion rights,is approximately $55 per share.Shortly after the issuance of the preferred shares,the detachable warrants traded at $5 each.
Requirement:
Record the journal entry for the issuance of these shares and warrants under IFRS.

Accepted Answer

The answer of A company issued 105,000 preferred shares and...

Question 7

Assume that Aero agrees to purchase US$50,000 for C$52,000 on January 15,2013.The exchange rate at year end is US$1 = C$0.98 and the January 15,2013 exchange rate is US$1 = C$0.97.What journal entry is required at year end?

Accepted Answer

A) $3,000 loss. 
B) $3,000 gain. 
C) $3,500 loss. 
D) $3,500 gain.

Question 8

Which statement best describes the "incremental method"?

Accepted Answer

A) Under this method of accounting,for a convertible bond,all of the bond value would be counted as a liability. 
B) Under this method of accounting,for a convertible bond,the issuing entity would record a liability for the estimated value of the bond without the conversion feature. 
C) Under this method of accounting,for a convertible bond,an estimate would be made of the fair value of all components and allocated proportionally to all components. 
D) Under this method of accounting,the common share component is considered the most reliably measured amount.

Question 9

On December 15,a company enters into a foreign currency forward to buy €300,000 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$1.59: €l.
Requirement:
Record the journal entries related to this forward contract.

Accepted Answer

The answer of On December 15,a company enters into a...

Exam 14: Complex Financial Instruments

What is a "put" option?

Assume that Ariel agrees to purchase US$500,000 for C$550,000 on January 15,2013.The exchange rate at year end is US$1=C$0.95 and the January 15,2013 exchange rate is US$1=C$0.97.What journal entry is required when the contract is initiated?

Explain how bonds issued with warrants alleviate adverse selection problem.

Assume that Aero agrees to purchase US$50,000 for C$52,000 on January 15,2013.The exchange rate at year end is US$1 = C$0.98 and the January 15,2013 exchange rate is US$1 = C$0.97.What journal entry is required at year end?

Which statement best describes the "incremental method"?

On December 15,a company enters into a foreign currency forward to buy €300,000 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$1.59: €l. Requirement: Record the journal entries related to this forward contract.