Chapter 15 MC Flashcards
1
Q
44. On January 1st, 2014 ABC Inc. had invoiced a client in New York for $10,000 US for services rendered that day. ABC did not hedge this receivable. The receivable is due in 60 days. On January 1st, 2014, the spot rate was $1US = $1.02CDN. On January 31st, 2014, the spot rate was $1US = $1.05CDN. What is the effect of the above information on ABC's January financial statements? A. A $300 foreign exchange gain. B. A $300 foreign exchange loss. C. A $300 credit to OCI. D. A $300 debit to OCI.
A
a
2
Q
- S Corporation created a stock option plan for its two top executives. The plan provided that each executive would receive 1,000 options, which would enable him or her to purchase 100 shares at 75 percent of the market price on the date the options, became exercisable. The options were exercisable in two years. At the date of granting the options, the market price of the shares was $12 per share. The date of measurement for the stock option plan was the:
A. date of grant.
B. end of the first year.
C. end of the second year.
D. date the employees’ exercise their options.
A
c
3
Q
- JKC initiated a stock option plan for its three top executives. The plan provided that each executive would receive 6,000 options that would enable each one to purchase 600 shares at the option price. The option price was set at 10 percent below market price at the first exercise date. The options could be exercised after the executives remained as employees of the company for 3 more years. The market price of the shares on the date that the options were granted was $10 per share. The amount of compensation expense the company incurred for the three executives due to the option plan was:
A. $8,100
B. $3,000
C. $600
D. $0
E. Cannot be determined from the information provided
A
e
4
Q
see 47
A
see 47
5
Q
- Which of the following are requirements for hedge accounting?
A. An existing risk management strategy involving hedging.
B. Designation and documentation of the hedging relationship.
C. Reasonable expectation of hedge effectiveness.
D. All of these answers are correct.
A
d
6
Q
- A stock option plan is a compensatory plan if:
A. The employee must have worked for the company for one year.
B. The employee must report the option on the employee’s current tax return.
C. The employee must work for the company until retirement.
D. It involves a cost to the grantor.
A
d
7
Q
50. $10,000 (face value) of bonds was sold with a total of 200 detachable stock warrants attached. Each warrant conveys the right to purchase one common share at a specified price during a specified time period. The market immediately valued the warrants at $2 each. The issue sold for 102. The entry to record the bond issuance would include: A. dr. bond premium $200 B. dr. owners' equity account $400 C. cr. bonds payable $10,200 D. dr. bond discount $200
A
d
8
Q
51. All of the following are examples of derivative instruments except: A. Foreign exchange forward contracts B. Interest rate swaps C. Currency swaps D. Retractable preferred shares
A
d
9
Q
52. Which of the following is an example of a financial asset? A. Inventory B. accounts receivable C. Capital assets D. Prepaid expenses
A
b
10
Q
- In order to determine if, in substance, a complex financial instrument is debt, the answer should be yes to all of the following except:
A. Is the periodic return on capital obligatory?
B. Is the debtor legally obligated to repay the principal at a fixed rate?
C. Is the amount convertible into common shares?
D. Is the debtor legally obligated to repay the principal at the option of the creditor?
A
c
11
Q
- In order to determine if, in substance, a complex financial instrument is equity, the answer should be no to all of the following except:
A. Is the periodic return on capital obligatory?
B. Is the debtor legally obligated to repay the principal at a fixed rate?
C. Is the amount convertible into common shares?
D. Is the debtor legally obligated to repay the principal at the option of the creditor?
A
c
12
Q
- All of the following are common reasons for a company to issue convertible bonds except:
A. The company prefers to issue shares, but is unsure of the present stock market and the timing.
B. The bonds are issued to controlling shareholders so that they can receive interest payments in preference to other shareholders.
C. A bond that has a favourable component such as a conversion privilege, can carry a lower interest rate than a “straight” bond.
D. All of these answers are correct
A
d
13
Q
- General characteristics of convertible bonds that will be converted include all of the following except:
A. management fully intends that the conversion privilege will eventually be attractive to the investors.
B. the investors will convert at or before maturity date.
C. the company will no longer have to repay the principal amount of the bonds.
D. the market price of the shares will drop below the conversion price.
A
d
14
Q
- Why would a corporation issue retractable preferred share in a private placement rather than a normal debt arrangement?
A. Cash flow
B. Income minimization
C. The tax treatment of intercorporate dividends
D. None of these answers are correct.
A
c
15
Q
58. Silo Corp. granted to Donna, its superstar accountant, the option to purchase Silo common shares for $10, on Jan. 1, 20x1. The market price of the shares on that date was $20. The options can be exercised during the period Jan. 1, 20x4 through Jan. 1, 20x6. The number of shares under option is determined by a formula based on Silo earnings each year. The number of shares actually under option will be the formula value on Dec. 31, 20x3. That formula estimated the following number of shares under option at the end of years: 20x1, 200; 20x2, 300. The formula determined the number of shares at Dec. 31, 20x3 to be 400. The market prices for Silo shares at the end of years: 20x1, $25; 20x2, $40, 20x3, $50. What is the recorded compensation expense for 20x2, for Donna? A. $7,250 B. $3,000 C. $4,000 D. $4,500 E. $5,000
A
c
16
Q
- A non-compensatory stock option plan means that:
A. Any employee can purchase shares at a discount from the prevailing market price.
B. Top executives are given shares in the company.
C. No shares are given but shareholders are allowed to be purchased on the open market.
D. None of these answers are correct.
A
a
