The major difference between a convertible debt and share warrants is that upon exercise of the warrants a. No share premium can be part of the transaction. b. The shares involved are restricted and can only be sold by the recipient after a set period of time c. The holder has to pay
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- If share warrants were exercised by the holder of compound financial instrument, liability would be derecognize a debit to the equity account related to share warrants will be done a credit to the equity account related to share warrants will be done share warrants outstanding account will not be affected. The proceeds from a bond issued with conversion feature should be accounted for entirely as bonds payable entirely as shareholders’ equity partially as unearned revenue and partially as bonds payable partially as shareholders’ equity and partially as bonds payableT or F - Zero-interest bonds sell at a significant discount that provides an investor with a total interest payoff at maturity. -Bond issuance costs must be reported separately as deferred charges and charged to expense over the life of the bond issue. -According to PAS 37, restructuring is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity; or the manner in which that business is conducted -Provisions are presented in the statement of financial position as part of the line item “Trade and other payables.”Which of the following statements about convertible bonds is correct? Before conversion, convertible bonds are treated as equity because they can be potentially converted to equity shares. Holders are more likely to convert bonds to equity shares if stock price declines significantly. Upon conversion, a gain or loss will be recognized. The company who sells convertible bonds will pay interest at a lower interest rate.
- Which of the following statements concerning warrants is CORRECT? JUST EXPLAIN ONE ANSWER WHICH IS INCORRECT. Bonds with warrants and convertible bonds both have option features that their holders can exercise if the underlying stock’s price increases. However, if the option is exercised, the issuing company’s debt declines if warrants were used but remains the same if it used convertibles. Warrants are long-term call options that have value because holders can buy the firm’s common stock at the exercise price regardless of how high the stock’s price has risen. A firm’s investors would generally prefer to see it issue bonds with warrants than straight bonds because the warrants dilute the value of new shareholders, and that value is transferred to existing shareholders.Describe the accounting treatment for convertible debt and for debt issued with detachable stock warrants. How does the treatment differ and what justification does FASB use for requiring different treatment?.Which of the following is incorrect regarding a compound financial instrument? a.)None of the other choices is incorrect. b.)Convertible bonds and bonds with share warrants are examples of compound financial instruments. c.)It is a financial instrument that from the debtor’s perspective, contains both a liability and an equity element. d.)The buyer accounts for the elements of a compound financial instrument separately.
- 1. When an entity issued bonds payable with detachable share warrants, how will share premium be computed if the share warrants are exercised by the bondholders? (Choose an answer and explain why) a. It is the balance of the share warrants outstanding. b. It is the sum of the share warrants outstanding and total par or stated value of the shares issued. c. It is the difference between the proceeds received based on the exercise price and the total par or stated value of the shares issued. d. It is the difference between the proceeds received based on the exercise price plus the share warrants outstanding and the total par or stated value of the shares issued.When the cash proceeds from a bond issued with detachable stock purchase warrants exceed the sum of the par value of the bonds and the fair value of the warrants, the excess should be credited to:a. Additional Paid-in Capitalb. Retained Earningsc. Premium on Bonds Payabled. Detachable Stock Warrants OutstandingWith regard to the measurement of a convertible bond issue, which of the following statements is correct?a. IFRS requires the use of the relative fair value method for the bond and the convertible feature b. IFS requires all proceeds be recorded as debt. c. ASPE would not allow the entire proceeds to be credited to bonds payable d. ASPE provides that the amount paid in associated with the conversion feature be either valued at zero or at the differencebetween the amount paid in and the fair value of the bond only as contributed surplus. e. None of the above.
- Which of the following statements is correct?(a) IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component.(b) Both IFRS and GAAP assume that when there is choice of settlement of an option for cash or shares, share settlement is assumed.(c) IFRS separates the proceeds of a convertible bond between debt and equity, based on relative fair values.(d) Both GAAP and IFRS separate the proceeds of convertible bonds between debt and equity.Which of the following statements is correct? a. IFRS separates the proceeds of a convertible bond between debt and equity by determining the fair value of the debt component before the equity component. b. Both IFRS and GAAP assume that when there is choice of settlement of an option for cash or shares, share settlement is assumed. c. IFRS separates the proceeds of a convertible bond between debt and equity, based on relative fair values. d. Both GAAP and IFRS separate the proceeds of convertible bonds between debt and equity. 3. Under IFRS, convertible bonds:Which statement is incorrect? * a. Shares, issued in exchange for the settlement of a liability, are included in EPS calculation from the settlement date. b. Shares, that will be issued upon the conversion of a mandatorily convertible instrument, are included in the calculation of basic EPS from the date the contract is entered into. c. Contingently-issuable shares are treated as outstanding, and are included in the calculation of basic EPS from the date when all necessary conditions are satisfied. none of the above