Question 1

KER Corp.issued 150,000 rights allowing the holder to acquire common shares in 3 years' time at an acquisition price of $25 per share-the current market price.It takes 10 rights to acquire each share.The corporation received $30,000 for the rights.Assuming that 100,000 rights are exercised when the market price was $30,and the balance expire,prepare journal entries at: announcement date,issuance date,exercise date and expiration date.

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Question 2

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000.
Prepare a Journal entry for interest expense on 30 June 20X2 and 31 December 20X2.Assume that ABC uses straight-line amortization for bond premium and discount.

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Question 3

KER Corp.issued 150,000 rights allowing the holder to acquire common shares in 3 years' time at an acquisition price of $30 per share-the current market price.It takes 5 rights to acquire each share.The corporation received $40,000 for the rights.Assuming all rights are exercised when the market price was $35,prepare journal entries at: announcement date,issuance date and exercise date

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Question 4

JMR Ltd.sold $350,000 of 5% (annual interest payments)convertible 5 year bonds at 101.The market interest rate on the sale date was 7%.Each $1,000 bond was convertible into 20 shares of KER Ltd.no-par value common shares on any interest date after the end of the first year from the date of issuance.Using IFRS,prepare the journal entry at issuance using the incremental method.

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Question 5

Explain why a company would want to classify a financial instrument as debt instead of equity?

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Question 6

JMR Ltd.purchased $100,000 of bonds convertible into common shares at a price of $50.The bonds have a maturity date of 20x4.On the maturity date,the market price of the common shares is $45.Assuming that JMR Ltd.is a knowledgeable investor,what will the company do?

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Question 7

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 entry to record the interest payment on the first interest date of 31 December 2014.

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Question 8

WB Ltd.issues a $200,000,6%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

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Question 9

DWWR Ltd.issues a $150,000,6%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

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Question 10

JMR Ltd.purchased $100,000 of bonds convertible into common shares at a price of $50.The bonds have a maturity date of 20x4.On the maturity date,the market price of the common shares is $55.Assuming that JMR Ltd.is a knowledgeable investor,what will the company do?

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Question 11

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000.
Assume that the holders of $300,000 face value bonds exercise their conversion privilege on 1 January 20X5,when market value of the common shares is $65.Prepare the journal entry to record the conversion,using the book value method.

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Question 12

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.

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Question 13

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000.
Indicate how all amounts relating to the bonds will be shown on ABC financial statements for the year ending 31 December 20X2.

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Question 14

Why do companies issue retractable preferred shares?

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Question 15

What is a "poison pill"?

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Question 16

JMR Ltd.sold $350,000 of 5% (annual interest payments)convertible 5 year bonds at par.The market interest rate on the sale date was 7%.Each $1,000 bond was convertible into 20 shares of KER Ltd.no-par value common shares on any interest date after the end of the first year from the date of issuance.Using IFRS,prepare the journal entry at issuance using the proportional method.Assume that the option pricing model placed a value of $73,675 for the conversion feature.

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Question 17

JMR Corp.grants their top executive an option for 1,000 shares.The option price is $30 per share.Prepare the journal entry if the current market price is $40 per share.What would happen if instead the market price was $25?

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Question 18

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 are convertible into 50 common shares for each $1,000 of the bonds' face value.
Part A: Prepare Journal entries to record the issuance of the bonds on January 1,2014.Assume that the principal will not be repaid.Instead,shares will be issued to the holders of the debentures in addition to the cash interest paid.In other words,conversion is deemed to be mandatory.
Part B: Prepare Journal entry to record the interest payment on the first interest date of 31 December 2014.Also record the related equity transfer.

Accepted Answer

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Question 19

On January 20X2,ABC Corporation issued $1,000,000 face amount of 8%,five year,convertible debentures.Interest is payable semi-annually on 30 June and 31 December.The debentures are convertible at the holder's option at the rate of 20 common shares for each $1,000 bond.The market rate of interest for non-convertible bonds of similar risk and maturity is 6%.The net proceeds received by ABC Corporation amounted to $1,250,000.
Prepare a Journal entry to record the issuance of the bonds on 1 January 20X2.

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Question 20

JMR Ltd.issues a $150,000,7%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

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

Explain why a company would want to classify a financial instrument as debt instead of equity?

JMR Ltd.purchased $100,000 of bonds convertible into common shares at a price of $50.The bonds have a maturity date of 20x4.On the maturity date,the market price of the common shares is $45.Assuming that JMR Ltd.is a knowledgeable investor,what will the company do?

WB Ltd.issues a $200,000,6%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

DWWR Ltd.issues a $150,000,6%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.

JMR Ltd.purchased $100,000 of bonds convertible into common shares at a price of $50.The bonds have a maturity date of 20x4.On the maturity date,the market price of the common shares is $55.Assuming that JMR Ltd.is a knowledgeable investor,what will the company do?

Why do companies issue retractable preferred shares?

What is a "poison pill"?

JMR Corp.grants their top executive an option for 1,000 shares.The option price is $30 per share.Prepare the journal entry if the current market price is $40 per share.What would happen if instead the market price was $25?

JMR Ltd.issues a $150,000,7%,five-year debenture at par,repayable at maturity in common shares at DWWR's option.Interest is repayable annually in cash.Prepare the journal entry at issuance.