Sometimes an entity issues financial instruments that require settlement using its own shares. Examples of these include purchased or written options to buy or sell its own shares, or forward contracts to buy or sell its own shares. Explain the accounting issues that result from the existence of these instruments. How does IFRS tend to treat these types of instruments? Give examples to support the different treatments that are available under IFRS. Note any differences under ASPE.
> Assume the same information for Hedley Corporation as in BE17-2 except that the preferred shares are non-cumulative and the dividend has not been declared or paid. Data from BE17-2: Hedley Corporation had 2017 net income of $1.4 million. During 2017, H
> Flory Corporation is a rapidly growing privately owned company that is considering changing from ASPE to IFRS in order to prepare for a future public offering of shares. As Flory’s financial advisor, what advice would you give to management regarding EPS
> BCE Inc.’s accounting policy note and its note disclosures relating to the company’s pension and other post-employment benefits for the year ended December 31, 2014 are set out in the chapter. Instructions: Review the disclosures from BCE’s 2014 financi
> Rhonda is considering investing in the shares of either East Corporation or West Ltd. Both companies are publicly traded. How would an analysis of each company’s EPS help Rhonda decide which company to add to her investment portfolio?
> Assume the same information as in BE17-20 except that the put options allow the holder to sell Redpath’s shares to Redpath at $6 each. How should these options be treated when calculating the diluted EPS? Data from BE17-20: Use the same information as
> Assume the same information as in BE17-19 except that Redpath purchased put options to give it the option of selling 25,000 of its own common shares for $5 each. How should the options be treated when calculating the diluted EPS? Data from BE17-19: Red
> Use the same information as in BE17-19 and assume that Redpath also wrote put options that allow the holder to sell 25,000 of Redpath’s shares to Redpath at $8 per share. Calculate the incremental shares outstanding for Redpath Limited. Data from BE17-1
> Hedley Corporation had 2017 net income of $1.4 million. During 2017, Hedley paid a dividend of $5 per share on 100,000 preferred shares. Hedley also had 220,000 common shares outstanding during the year. Calculate Hedley’s 2017 earnings per share.
> Redpath Limited purchased 25,000 call options during the year. The options give the company the right to buy its own common shares for $4 each. The average market price during the year was $7 per share. Calculate the incremental shares outstanding for Re
> Ad Venture Ltd. provides a defined contribution pension plan for its employees. Currently, the company has 40 full-time and 55 part-time employees. The pension plan requires the company to make an annual contribution of $2,000 per full-time employee, and
> Next Generation Corporation (a private company) has preferred shares outstanding, which require Next Generation to redeem the shares for cash at an amount equal to the fair value of the company’s business assets at the time of issuance of the preferred s
> Strait Inc. has 300,000 common shares outstanding throughout the year. On June 30, Strait issued 10,000 convertible preferred shares that are convertible into two common shares each. Calculate the weighted average number of common shares to use in calcul
> Assume the same information as in BE17-15 except that Melanie reported net income of $350,000 in 2017. Calculate Melanie’s 2017 diluted earnings per share. Data from BE17-15: Melanie Corporation reported net income of $550,000 in 2017 and had 900,000 c
> Melanie Corporation reported net income of $550,000 in 2017 and had 900,000 common shares outstanding throughout the year. On May 1, 2017, Melanie issued 5% convertible bonds. Each $1,000 bond is convertible into 120 common shares. Total proceeds at par
> LGS Inc. is a private company. You have recently been hired as the CFO for the company and are currently finalizing the company year-end report for December 31, 2017. The company has an option to follow either IFRS or ASPE, and has not yet made the choic
> J. J. Kersee Corporation, a Canadian publicly traded company, is currently preparing the interim financial data that it will issue to its shareholders and the securities commission at the end of the first quarter of its December 31, 2017 fiscal year. Ker
> Assume the same information as in BE17-13 except that the 10% bonds are convertible into 10,000 common shares. Calculate Thiessen’s 2017 diluted earnings per share. Data from BE17-13: Thiessen Corporation earned net income of $300,000 in 2017 and had 1
> Thiessen Corporation earned net income of $300,000 in 2017 and had 100,000 common shares outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds that are convertible into 26,000 common shares. Thiessen’s tax rate is 25%. Calc
> Milliken Corporation reported net income of $700,000 in 2017 and had 115,000 common shares outstanding throughout the year. Also outstanding all year were 9,500 of cumulative preferred shares, with each being convertible into two common shares. The prefe
> Francine Limited was incorporated with share capital consisting of 100,000 common shares. In January 2017, it issued 20,000 mandatorily convertible preferred shares. The terms of the prospectus for the issuance of the preferred shares require the convert
> Mila Enterprises Ltd. provides the following information about its defined benefit pension plan: Instructions: (a) Calculate the January 1, 2017 balances for the pension-related accounts if Mila follows IFRS. (b) Prepare the required disclosures that w
> Ethan Corporation had 100,000 common shares outstanding on December 31, 2016. During 2017, the company issued 12,000 shares on March 1, retired 5,000 shares on July 1, issued a 20% stock dividend on October 1, and issued 18,000 shares on December 1. For
> The 2017 income statement of Tanel Corporation showed net income of $860,000, which included a loss from discontinued operations of $140,000. Tanel had 25,000 common shares outstanding all year. (a) Calculate earnings per share for 2017 as it should be r
> Milano Ltd. issued 1,000 preferred shares for $10 per share. The preferred shares pay an annual, cumulative dividend of $0.50 per share, and become mandatorily redeemable if net income drops below $500,000 in any fiscal year. Discuss how Milano Ltd. shou
> Verhage Limited, a private company that complies with accounting standards for private enterprises (ASPE), has redeemable preferred shares outstanding that carry a dividend of 5%. If the shares are not redeemed within five years, the dividend will double
> Jamieson Limited, a publicly accountable enterprise, issued bonds that will not be due until 2114. The bonds carry interest at 5%. Explain how this instrument should be presented on the statement of financial position.
> On January 1, 2017, Wolfgang Ltd. paid $1,000 for the option to buy 5,000 of its common shares for $25 each. The contract stipulates that it may only be settled by exercising the option and buying the shares. How should this be accounted for in the finan
> Different countries have different statutory tax rates. Instructions: Choose an industry and select five companies that operate in different countries. Access these companies’ most recent annual financial statements and make note of their statutory and
> Refer to BE16-4. Assume the same facts except that the forward contract is a futures contract that trades on the Futures Exchange. Ginseng Inc. was required to deposit $30 with the stockbroker as a margin. Prepare the journal entries to update the books
> On January 1, 2017, Ginseng Inc. entered into a forward contract to purchase U.S. $6,000 for $6,336 Canadian in 30 days. On January 15, the fair value of the contract was $40 (reflecting the present value of the future cash flows under the contract). Ass
> On February 1, 2017, Daily Produce Ltd. entered into a purchase commitment contract to buy apples from Farmers Corporation. According to the contract, Daily Produce could settle the contact on a net basis; however, Daily Produce intends to take delivery
> The following is partial information related to Siri Ltd.’s non-pension, post-retirement health care benefit plan at December 31, 2017: Defined post-retirement benefit obligation, accounting basis………………..$185,000 Plan assets (at fair value)…………………………………
> Spencer Ltd. established a share appreciation rights (SARs) program on January 1, 2017, which entitles executives to receive cash at the date of exercise (anytime in the next three years) for the difference between the shares’ fair value and the pre-esta
> Applegate Inc. established a share appreciation rights (SARs) program on January 1, 2017, which entitles executives to receive cash at the date of exercise for the difference between the shares’ fair value and the pre-established price of $16 on 3,700 SA
> On January 1, 2017, Blaine Corporation granted 6,000 options to executives. Each option entitles the holder to purchase one share of Blaine’s common shares at $35 per share at any time after January 1, 2019. The shares’ market price is $50 per share on t
> Explain the differences between employee and compensatory option plans and other options.
> List the types of stock compensation plans and discuss the objectives of effective stock compensation plans.
> Saver Rio Ltd. purchased options to acquire 1,000 common shares of Spender Limited for $20 per share within the next six months. The premium (cost) related to the options was $500. How should this be accounted for in the financial statements of Saver Rio
> In January 2017, Parker Inc. issued preferred shares that must be redeemed by Parker if the fair value of the company’s common shares exceeds $100 per share. At time of issuance of the preferred shares, Parker’s common shares had a fair value of $60 per
> Alimentation Couche-Tard Inc., Loblaw Companies Limited, and Empire Company Limited are three companies in the same industry. Because of this, the expectation is that their operations and financial positions are also similar. Instructions: Go to SEDAR (
> Davison Corporation has puttable common shares outstanding. These shares give the holder the option to require Davison to repurchase the shares for cash. In the event of liquidation, the holders of these shares are also entitled to a pro rata share of Da
> Trelawny Ltd. issued 13,000 common shares upon conversion of 10,000 preferred shares. The preferred shares were originally issued at $9 per share and the Contributed Surplus—Conversion Rights account for the preferred shares had a balance of $9,000. The
> Refer to the information in E19-16 and assume Opsco applies IFRS. Instructions: Complete a post-retirement work sheet for 2017, and prepare all required journal entries related to the plan made by Opsco in 2017. Data from E19-16: Opsco Corp. provides
> Refer to BE16-12. Assume that Bantry Capital Ltd. follows ASPE and valued the debt component of the instruments first, applying the residual to the equity component. On a date when the bonds had a carrying value of $489,100 and fair value of $492,370, Ba
> Refer to BE16-12. Assume that Bantry Capital Ltd. follows IFRS and recorded the issuance of the bonds and warrants accordingly. On a date when the bonds had a carrying value of $489,100, Bantry paid $14,000 to the bondholders to induce early conversion.
> Refer to BE16-12 but assume that the instruments are convertible bonds and that they have now been converted. Assume that Bantry Capital Ltd. follows ASPE, and that all of the proceeds were allocated to the debt component upon initial recognition. At the
> Bantry Capital Ltd. issued 500 $1,000 bonds at 103. Each bond was issued with 10 detachable stock warrants. After issuance, similar bonds were sold at 97, and the warrants had a fair value of $2.50. (a) Record the issuance of the bonds and warrants assum
> On January 1, 2017, MacGregor Ltd. issued 1,000 five-year, 10% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the current fair value of each common share is $6 per share. S
> During 2017, Genoa Limited issued retractable preferred shares. The shares may be presented to the company by the holder for redemption after 2020. Explain how these should be presented in the financial statements under IFRS and ASPE.
> Abourawes Services Inc. issued 1,000 $2 convertible preferred shares at $75 and 5,000 common shares at $25 each in 2016. Each preferred share is convertible into three common shares. On March 15, 2017, preferred shareholders converted 200 preferred share
> Maple Leaf Foods Inc. is a Canadian company that produces food products such as prepared meats, ready-to-cook and ready-to-serve meals, and fresh pork and poultry. While most of Maple Leaf Foods’ business is conducted in Canada, it also generates revenue
> Spencer Limited has 50,000 common shares outstanding, with an average issue price per share of $8. On August 1, 2017, the company reacquired and cancelled 600 shares at $40 per share. There was contributed surplus of $0.25 per share at the time of the re
> Opsco Corp. provides the following information about its post-retirement health care benefit plan for the year 2017: Current service cost…………………………………………………………………………$ 202,500 Contribution to the plan………………………………………………………………………..47,250 Actual return on p
> Higgins Inc. has 52,000 common shares outstanding. The shares have an average cost of $21 per share. On July 1, 2017, Higgins reacquired 800 shares at $56 per share and retired them. Assume no contributed surplus balances exist from previous share repurc
> Platinum Corporation issued 4,000 of its common shares for $66,000. The company also incurred $1,700 of costs associated with issuing the shares. Prepare a single combined journal entry to record the issuance of the company’s shares.
> On March 1, Kramers Inc. sells 1,000 common shares to its employees at $25 per share and lends the money to the employees to buy the new shares. The employees pay 50% of the price on the transaction date and pay the balance in one year. (a) Prepare the c
> Bonata Inc. sells 1,400 common shares on a subscription basis at $65 per share on June 1 and accepts a 45% down payment. On December 1, Bonata collects the remaining 55% and issues the shares. Prepare the company’s journal entries.
> Walter Corporation has three classes of shares: Series A, Series B, and Class A. How should Walter classify and present the different classes if the characteristics of each class are as follows? Series A shares The shares are mandatorily redeemable and c
> Henry Corporation sells home entertainment systems. The corporation also offers to sell its customers a two-year warranty contract as a separate service. During 2017, Henry sold 20,000 warranty contracts at $99 each. The corporation spent $180,000 servic
> Refer to the information for Jupiter Corp. in BE13-25. (a) Prepare entries for the warranty that recognize the sale as a multiple deliverable with the warranty as a separate service that Jupiter bundled with the selling price of the product. Sales in 201
> Sports International had total debt of $500,000 and $750,000 as at December 31, 2017 and December 31, 2016, respectively, of which $100,000 and $150,000 was current. In addition, the company had total assets of $900,000 and $700,000 as at December 31, 20
> Ambrosia Limited has the following balances as at December 31, 2017: accounts payable and accrued liabilities $20,000, wages payable $15,000, severance payable (due September 30, 2019) $15,000, and bonds payable of $140,000 due September 30, 2020 (curren
> Davida Limited started operations in 2013. Although it has grown steadily, the company reported accumulated operating losses of $450,000 in its first four years in business. In the most recent year (2017), Davida appears to have turned the corner and rep
> Access the annual financial statements of Empire Company Limited for its year ended May 2, 2015 at www.sedar.com or the company’s website. Instructions: Review Empire Company Limited’s consolidated financial statements and provide answers to the followi
> Tsui Corporation went through a financial reorganization by writing down its buildings by $107,000 and eliminating its deficit, which was $182,000 before the reorganization. As part of the reorganization, the creditors agreed to take back 55% of the comm
> Use the information for Hanover Corporation in BE15-21. Assume now that the company resells the 1,000 treasury shares at $55 per share. Prepare the journal entries for the repurchase and subsequent sale of the treasury shares. Data from BE15-21: Hanove
> Hanover Corporation has 750,000 shares outstanding. The shares have an average cost of $45 per share. On September 5, 2017, the company repurchases 1,500 of its own shares at $75 per share and does not cancel them. The shares are classified as treasury s
> Sullivan Limited issued 2,000 shares of no par value common shares for $79,000. Prepare Sullivan’s journal entry if (a) the shares have no par value, and (b) the shares have a par value of $11 per share.
> List the types of dividends. Why do companies or investors have a preference for one or the other?
> Khalid Inc. has the following selected financial data: There were no preferred dividends in arrears. (a) Calculate the following ratios for 2017: (1) rate of return on common shareholders’ equity, (2) payout ratio, (3) price earnings
> The Sawgrass Corporation, a public company, reported the following balances at January 1, 2017: Common Shares (32,000 shares issued, unlimited authorized)…………………$ 800,000 Retained Earnings…………………………………………………………………………………1,500,000 Contributed Surplus……………
> Lu Corporation has the following account balances at December 31, 2017: Common Shares Subscribed………………………………………………..$ 250,000 Common Shares…………………………………………………………………….310,000 Subscriptions Receivable…………………………………………………………80,000 Retained Earnings………………………
> Use the information for Kindey Corporation from BE15-15. Assume instead that Kindey declared a 1-for-5 reverse stock split, and answer the same questions. Data from BE15-15: Kindey Corporation has 185,000 common shares outstanding with a carrying value
> Kindey Corporation has 185,000 common shares outstanding with a carrying value of $20 per share. Kindey declares a 4-for-1 stock split. (a) How many shares are outstanding after the split? (b) What is the carrying value per share after the split? (c) Wha
> The following facts apply to the pension plan of Yorke Inc. for the year 2017. Yorke applies ASPE. Plan assets, January 1, 2017……………………………………………………………….$490,000 Defined benefit obligation, funding basis, January 1, 2017………………………389,000 Defined benefit o
> Davis Inc. is a privately held company that uses ASPE. Davis had the following information available at March 31, 2017: Davis Inc.’s partial list of comparative account balances as at March 31, 2017 and 2016 is as follows: Additiona
> Access the audited annual financial statements of Goldcorp Inc. for its year ended December 31, 2014 from SEDAR (www.sedar.com) or the company’s website. Instructions: (a) Describe the business that Goldcorp Inc. operates in. (b) Identify the components
> Chadwick Corporation has 450,000 common shares outstanding. The corporation declares a 6% stock dividend when the common shares’ fair value is $30 per share. (Their carrying value is $18 per share.) Prepare the journal entries for the company for both th
> On April 20, Raule Mining Corp. declared a dividend of $400,000 that is payable on June 1. Of this amount, $150,000 is a return of capital. Raule had no contributed surplus on April 20. Prepare the April 20 and June 1 journal entries for Raule.
> Mallard Inc. owns shares of Oakwood Corporation that are classified as Mallard’s fair value through net income (FV-NI) investment portfolio and accounted for using the FV-NI model. At December 31, 2016, the securities were carried in Mallard’s accounting
> Martinez Ltd. has the following equity accounts at January 1, 2017. Preferred shares outstanding: 2,500 shares……………………………$ 62,500 Common shares outstanding: 4,000 shares…………………………….400,000 (a) What was the average issue price of the preferred shares? (
> Hamza Inc. declared a cash dividend of $0.60 per share on its 1.5 million outstanding shares. The dividend was declared on August 1 and is payable on September 9 to all shareholders of record on August 15. Prepare all necessary journal entries for those
> Explain the pros and cons of incorporating.
> Pflug Ltd. signed an instalment note on January 1, 2017 in settlement of an account payable of $40,000 owed to Mott Ltd. Pflug is able to borrow funds from its bank at 11%, whereas Mott can borrow at the rate of 10%. The note calls for two equal payments
> Big Country Corporation is in the business of selling cattle. Due to recent diseases plaguing cattle, Big Country is experiencing a cash shortage. Big Country issued a $280,000, six-year, zero-interest-bearing note to Little Town Corp. on January 1, 2017
> Brestovacki Corporation issued a $50,000, five-year, 5% note to Jernigan Corp. on January 1, 2017 and received a piece of equipment that normally sells for $38,912. The note requires annual interest payments each December 31. The market interest rate for
> Rosek Inc. provides the following information related to its post-retirement health care benefits for the year 2017: Defined post-retirement benefit obligation at January 1, 2017………………………………$110,000 Plan assets, January 1, 2017……………………………………………………………………
> Sophia Incorporated issued a $105,000, five-year, zero-interest-bearing note to Angelica Corp. on January 1, 2017 and received $52,000 cash. Sophia uses the effective interest method. (a) Using a financial calculator and computer spreadsheet functions, c
> Companies around the globe have moved to, or are in the process of moving to, IFRS. Evidence has shown that it is preferable to adopt IFRS in its entirety, with no deviations from the standards. This chapter shows how much the legal environment affects t
> On May 1, 2017, Jadeja Corporation, a publicly listed corporation, issued $200,000 of five-year, 8% bonds, with interest payable semi-annually on November 1 and May 1. The bonds were issued to yield a market interest rate of 6%. Jadeja uses the effective
> Samwall Ltd. needed funding to bridge the gap between paying its suppliers and collecting its receivables. As such, Samwall issued a $300,000, four-year, 8% note at face value to Easy Loan Bank on January 1, 2017 and received $300,000 cash. The note requ
> Buchanan Corporation issues $500,000 of 11% bonds that are due in 10 years and pay interest semi- annually. At the time of issue, the market rate for such bonds is 10%. Using time value of money tables, a financial calculator, and computer spreadsheet fu
> At December 31, 2017, Jelena Incorporated has a bond payable with a carrying value of $1,200,000 (based on amortized cost) due September 1, 2018 and a current value of $1,250,000. The interest payable as at December 31, 2017 is $25,000. Show how the abov
> On January 1, 2017, Steinem Corporation established a special purpose entity to buy $1 million of accounts receivable from Steinem. Investors have invested in the special purpose entity to benefit from the return on assets and certain tax advantages. The
> Lawrence Incorporated owes $100,000 to Ontario Bank Inc. on a two-year, 10% note due on December 31, 2017. The note was issued at par. Because Lawrence is in financial trouble, Ontario Bank agrees to extend the maturity date of the note to December 31, 2
> Assume that Theo Limited has a loan that is currently due at year end. The debt is being refinanced with a five-year loan and the deal to refinance the debt is signed two days after year end. How would the original loan be classified in the year-end stat
> Jensen & Jensen Incorporated, a telecommunications equipment manufacturer, has a debt to total assets ratio of 55%, while competing companies of similar size operating in the same industry have an average debt to total assets ratio of 62%. Jensen & Jense
> The following information is in regard to Saverio Corp.’s defined benefit pension plan. Defined benefit obligation, 1/1/17 (before amendment)………………………$239,000 Plan assets, 1/1/17……………………………………………………………………………….155,000 Discount rate……………………………………………………………
> On January 1, 2017, Jamil Incorporated redeemed bonds prior to their maturity date of January 1, 2018. The face value of the bonds was $800,000, and the redemption was performed at 97. As at the redemption date, the unamortized premium was $6,500. Prepar
> Hanson Incorporated issued $1 million of 7%, 10-year bonds on July 1, 2016 at face value. Interest is payable each December 31. The company has chosen to apply the fair value option in accounting for the bonds. A risk assessment at December 31, 2017 show
