Question 1

A company issued 105,000 preferred shares and received proceeds of $7,000,000. These shares have a benchmark 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 $63 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 2

A company issued 95,000 preferred shares and received proceeds of $6,000,000. These shares have a benchmark value of $48 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 $57 per share. Shortly after the issuance of the preferred shares, the detachable warrants traded at $8 each.
Required:
Record the journal entry for the issuance of these shares and warrants under IFRS.

Accepted Answer

The answer of A company issued 95,000 preferred shares and...

Question 3

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.

Accepted Answer

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Question 4

A company issued 100,000 preferred shares and received proceeds of $5,750,000. These shares have a benchmark 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 100,000 preferred shares and...

Question 5

A company issued 105,000 preferred shares and received proceeds of $6,100,000. These shares have a benchmark 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 6

A company had a debt-to-equity ratio of 1.64 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?

Accepted Answer

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Question 7

List three common stock compensation plans and describe them.

Accepted Answer

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Question 8

LMN Company reported the following amounts on its balance sheet at July 31, 2021:  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, 2022, 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, 2022.
b. Calculate the total number of common shares outstanding after the bonds' conversion on July 31, 2022.
c. Prepare the journal entry to record the bond conversion.

Accepted Answer

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Question 9

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.
Required:
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 10

On January 1, 2019, Wayward Co. issued a $22 million, 8%, 6-year convertible bond with annual coupon payments. Each $1,000 bond was convertible into 35 shares of Wayward's common shares. Moonbeam Investments purchased the entire bond issue for $22.7 million on January 1, 2019. Moonbeam estimated that without the conversion feature, the bonds would have sold for $21,013,098 (to yield 9%).
On January 1, 2020, Moonbeam converted bonds with a par value of $8.8 million. At the time of conversion, the shares were selling at $30 each.
Required:
a. Prepare the journal entry to record the issuance of convertible bonds.
b. Prepare the journal entry to record the conversion according to IFRS (book value method).
c. Prepare the journal entry to record the conversion according ASPE (market value method).

Accepted Answer

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Question 11

Which method must be used under IFRS to account for employee stock options?
A)Intrinsic value of options.
B)Time value of options.
C)Market value of the shares.
D)Fair value on the grant date of the options.

Accepted Answer

Under IFRS, the accounting for employee stock options requires the use of the fair value method on the grant date of the options. This approach involves estimating the value of the options at the time they are granted to employees, rather than using intrinsic value or market value of the shares.

Question 12

Which method must be used under ASPE to account for employee stock options?
A)Intrinsic value of options.
B)Time value of options.
C)Fair value of the options.
D)Market value of the shares.

Accepted Answer

Under ASPE (Accounting Standards for Private Enterprises), the fair value method must be used to account for employee stock options. This means that the company must determine the fair value of the options at the time they are granted and recognize this as an expense over the vesting period. This method takes into account both the intrinsic value (the difference between the exercise price and the market value of the shares) and the time value (based on the expected volatility of the share price).

Question 13

A company issues convertible bonds with face value of $10,000,000 and receives proceeds of $10,500,000. Each $1,000 bond can be converted, at the option of the holder, into 800 common shares. The underwriter estimated the market value of the bonds alone, excluding the conversion rights, to be approximately $8,300,000.
Required:
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 14

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?

Accepted Answer

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Question 15

O'Neil Motor Parts issued 110,000 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. O'Neil's management estimates the value of these options at the grant date to be $1.60 each.
Required:
Record the issuance of the stock options.

Accepted Answer

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Question 16

LMN Company reported the following amounts on its balance sheet at July 31, 2022:  Additional information
1. The bonds pay interest each July 31. Each $1,000 bond is convertible into 10 common shares. The bonds were originally issued to yield 10%. On July 31, 2022, 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, 2022.
b. Calculate the total number of common shares outstanding after the bonds' conversion on July 31, 2022.
c. Prepare the journal entry to record the bond conversion.

Accepted Answer

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Question 17

Explain the conceptual meaning of the difference between the book value and market value methods of recording the conversion of bonds into common shares.

Accepted Answer

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Question 18

Which statement is correct about the accounting for employee stock options?
A)The expense is recorded over the period of vesting.
B)The expense is recorded over the period to expiry.
C)The expense is recorded immediately upon grant date.
D)No expense is recorded for accounting purposes.

Accepted Answer

The accounting for employee stock options requires that the expense be recorded over the period of vesting or the period during which the employee earns the right to exercise the options. This is known as the recognition period. The expense is typically calculated using an option pricing model and is based on the fair value of the options at the grant date. This expense is recognized over the recognition period as a charge to compensation expense and a corresponding increase in the equity account.

Question 19

A company issued 75,000 preferred shares and received proceeds of $7,000,000. These shares have a benchmark value of $80 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 $90 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 75,000 preferred shares and...

Question 20

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?

Accepted Answer

The answer of A company had a debt-to-equity ratio of...

Quiz 4: Complex Financial Instruments

List three common stock compensation plans and describe them.

Which method must be used under IFRS to account for employee stock options?

Which method must be used under ASPE to account for employee stock options?

Explain the conceptual meaning of the difference between the book value and market value methods of recording the conversion of bonds into common shares.

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