Question 1

How would the exercise of an option,that was part of an initial compound instrument,be recorded?

Accepted Answer

A)  Common stock is recorded at an amount equal to the fair value of the options at date of conversion. 
B)  Common stock is recorded at an amount equal to the price determined by the Black-Sholes model. 
C)  Common stock is recorded at an amount equal to the market price of the shares on conversion date. 
D)  Common stock is recorded at an amount equal to the cash received plus the contributed surplus initially recorded.

Question 2

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.
Required:
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 3

On December 15,2017 Welders Inc.signed a contract to purchase 200,000 kg of copper pipes to be received on February 15,2018.Terms of sale were COD (cash on delivery).Welders,which has a December 31 year-end,entered into a two months forward agreement to purchase the copper to mitigate its price change risk.Welders designated the forward as a cash flow hedge.Pertinent commodity prices follow:
  Required:
Record the required journal entries for December 15,December 31,and February 15 using the net method.If no entries are required,state "no entry required" and indicate why.

Accepted Answer

The answer of On December 15,2017 Welders Inc.signed a contract...

Question 4

Assume that MAK agrees to purchase US$500,000 for C$550,000 on January 15,2018.The exchange rate at year-end is US$1 = C$0.95 and the January 15,2018 exchange rate is US$1 = C$0.97.What journal entry is required at year-end?

Accepted Answer

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

Question 5

Briefly describe a compound financial instrument and its advantages.

Accepted Answer

The answer of Briefly describe a compound financial instrument and...

Question 6

On January 1,2018 Taffy Inc.granted 210,000 stock appreciation rights (SARs)to its executives.Each SAR entitled its holder to receive cash equal to the difference between the market price of the common share and the benchmark price of $16.The SARs vested after three years and expired on Dec.31,20 23.On January 1,2021,100,000 SARs are exercised.The market price of the shares remained at $20.On January 1,2022,50,000 SARS are exercised.The market price of the shares remained at $22.The remaining SARs expired.
Pertinent stock-related data are listed below:
  Required:
a.Prepare the journal entry at December 31,2018,to record compensation expense.
b.Prepare the journal entry at December 31,2019,to record compensation expense.
c.Prepare the journal entry at December 31,2020,to record compensation expense.
d.Prepare the journal entry at January 1,2021,to record the partial exercise of the SARs.
e.Prepare the journal entry at December 31,2021,to record compensation expense.
f.Prepare the journal entry at January 1,2022,to record the partial exercise of the SARs.
g.Prepare the journal entry at December 31,2022,to record compensation expense.
h.Prepare the journal entry at December 31,2023,to record compensation expense.

Accepted Answer

The answer of On January 1,2018 Taffy Inc.granted 210,000 stock...

Question 7

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

Accepted Answer

A)  Right to buy 100 shares of CIBC over the next 5 years. 
B)  Commitment to buy 100 barrels of oil next month at $125/barrel on the Chicago Mercantile Exchange. 
C)  Commitment to buy $100,000 U.S. dollars in 120 days at US$ = 1.10 from another company. 
D)  Pay interest at prime +3% in exchange for receiving interest at 5%.

Question 8

On September 30,2018,Pennsylvania Co.issued $3 million of 10%,10-year convertible bonds maturing on September 30,2028,with semi-annual coupon payments on March 31 and September 30.Each $1,000 bond can be converted into 80 no par value common shares.In addition,each bond included 20 detachable common stock warrants with an exercise price of $20 each.Immediately after issuance,the warrants traded at $5 each on the open market.Gross proceeds on issuance were $4.6 million (including accrued interest).From these proceeds,the company paid underwriting fees of $55,000.Without the warrants and conversion features the bond would be expected to yield 6% annually.Pennsylvania's year-end is December 31.
On February 22,2021,warrant holders exercised one-half of the warrants.The shares of Pennsylvania traded at $44 each on this day.
Required:
a)Determine how Niagara should allocate the $4,600,000 proceeds into its components.
b)Prepare all the journal entries for fiscal year 2018.
c)Record the journal entry for the exercise of stock warrants on February 22,2021.

Accepted Answer

The answer of On September 30,2018,Pennsylvania Co.issued $3 million of...

Question 9

Assume that Aero agrees to purchase US$50,000 for C$52,000 on January 15,2018.The exchange rate at year-end is US$1 = C$0.98 and the January 15,2018 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 10

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

Accepted Answer

A)  Right to buy 100 shares of CIBC at $50.00 per share over the next 5 years. 
B)  Commitment to buy 100 barrels of oil next month at $125/barrel. 
C)  Commitment to buy $100,000 U.S. dollars in 4 months at US$ = 1.10. 
D)  Pay interest at prime +3% in exchange for receiving interest at 5%.

Question 11

Which method is used under ASPE to account for compound instruments?

Accepted Answer

A)  Incremental method. 
B)  Fair value method. 
C)  Proportional method. 
D)  Book value method.

Exam 4: Complex Financial Instruments