Description
Problem 1 – Stock Options (30)
FIU Inc granted 25,000 stock options to its top management team on January 1, 2022.
The options vest at the end of 5 years (cliff vesting). The grant-date fair value of each
option is $100. No forfeitures are expected to occur. The company is expensing the cost
of the options on a straight-line basis over the 5-year period. On January 1, 2023, the fair
value of each option is $95. On January 1, 2024, the fair value is $98. On January 1, 2025
the fair value of each option is $96.
Required:
Determine the amount to be recognized as compensation expense for each of the 5
years under (a) IFRS, and (b) US GAAP.
Problem 2 – Equity Investment (30)
Panthers Corp. purchased 16,000 shares of Canes Corp. for $10 per share on April 1,
2022. As per IFRS 9, Panthers chose to classify this new investment as FVOCI at the
time of the purchase. On November 1, 2022 Canes paid a dividend of $6 per share. At
balance sheet date the market price of Canes was $9 per share. On March 1, 2023
Panthers sold all 16,000 shares for $15 per share.
Required
Prepare the journal entries required under IFRS as well as those that would be required
under GAAP.
Problem 3 – Convertible Bonds (40)
On January 1, 2021, MANGO Corp. issues $100 million of convertible bonds at par value.
The bonds have a stated annual interest rate of 6%, pay interest semiannually, and
come due December 31, 2025. The bonds are convertible at any time after issuance at
the rate of 25 shares of common stock for each $1,000 of the face value of the convertible
bonds. Issuance costs total $500,000. The current annual market interest rate for non-
convertible bonds with similar maturity is 8%.
Required:
1 – Prepare the journal entries to record the issuance of the convertible bonds (round to
the nearest dollar).
2 – Determine the amount of expense related to the convertible bonds that the company
should recognize each year (round to the nearest dollar) and prepare the journal entries
for the first year only.
