Chapter 2 - Shareholders' Equity 2.15. The Red Carpet Company wants to raise its working capital. After analysis of available alternatives, the company decides to issue 1.500 shares of P30 par preference share capital with detachable warrants. The package of the preference shares and warrants sells for p98. The warrants enable the holder to purchase 750 shares of P10 par ordinary shares at P40 per share. Immediately following the issuance of shares, the share warrants are selling at P10 each. Each preference share without the warrant sells for P90. REQUIRED Amount assigned to the preference share and share warrants issued. Entry to record the exercise of the warrants, assuming that only 80% of the warrants were exercised. (b) 2-16. On January 1, 2020, the Red Hot Company established a share option plan for its selected senior employees. A total of 30,000 options were granted that permit said employees to purchase 30,000 shares of P20 par ordinary share capital at P35 per share. Options are exercisable beginning on January 1, 2023 and can be exercised anytime from January 1, 2023 through December 31, 2024. At January 1, 2020, the market price for the Red Hot Company share option was P8, based on an option pricing model used by the entity. All, but 2,000 share options, were exercised on December 31, 2023. REQUIRED: (a) Computation of compensation expense for years 2020, 2021 and 2022 Entries as a result of the foregoing for year 2020 through 2023, inclusive (b) 2-17. On January 2, 2020, the shareholders of Fire Red Company approved a plan granting certain officers of the company nontransferable options to buy 50,000 shares of P100 par ordinary share capital at P280 per share. The option-pricing model used by the company indicates that the fair value of each option on January 2, 2020 is P30. The plan provides that the officers must be employed by the company until December 31, 2022 and that the options will expire at the end of 2023. 149 Chapter 2 - Shareholders' Equity 2.15. The Red Carpet Company wants to raise its working capital. After analysis of available alternatives, the company decides to issue 1.500 shares of P30 par preference share capital with detachable warrants. The package of the preference shares and warrants sells for p98. The warrants enable the holder to purchase 750 shares of P10 par ordinary shares at P40 per share. Immediately following the issuance of shares, the share warrants are selling at P10 each. Each preference share without the warrant sells for P90. REQUIRED Amount assigned to the preference share and share warrants issued. Entry to record the exercise of the warrants, assuming that only 80% of the warrants were exercised. (b) 2-16. On January 1, 2020, the Red Hot Company established a share option plan for its selected senior employees. A total of 30,000 options were granted that permit said employees to purchase 30,000 shares of P20 par ordinary share capital at P35 per share. Options are exercisable beginning on January 1, 2023 and can be exercised anytime from January 1, 2023 through December 31, 2024. At January 1, 2020, the market price for the Red Hot Company share option was P8, based on an option pricing model used by the entity. All, but 2,000 share options, were exercised on December 31, 2023. REQUIRED: (a) Computation of compensation expense for years 2020, 2021 and 2022 Entries as a result of the foregoing for year 2020 through 2023, inclusive (b) 2-17. On January 2, 2020, the shareholders of Fire Red Company approved a plan granting certain officers of the company nontransferable options to buy 50,000 shares of P100 par ordinary share capital at P280 per share. The option-pricing model used by the company indicates that the fair value of each option on January 2, 2020 is P30. The plan provides that the officers must be employed by the company until December 31, 2022 and that the options will expire at the end of 2023. 149