Harrison Limited is a public company that reports under IFRS. The company has a September 30, 2020 year end. The company had the following transactions during the 2020 fiscal year: 1. The company issued $300,000 of 4%, 15-year bonds. Each $1,000 bond is convertible into 150 common shares at the option of the bond holder. 2. In June, the company issued 2,000 preferred shares, non-convertible, 4% cumulative dividend, and mandatorily redeemable on June 14, 2024. 3. Harrison purchased a call option from DDR Investments Corporation on August 1, 2020. The option gave Harrison the right to buy 10,000 shares in a third company, Gubbons Media Group (GMG), at a price of $20 per share. The option expires on October 1, 2020. On the day Harrison purchased the option, GMG shares were trading at $20 each. Harrison paid $700 for the options. On August 31, 2020, the GMG shares were trading at $21.75 each and the options were trading at $13,000. On September 15, Harrison settled the options in cash when the GMG shares were trading at $23 and the options were trading at $21,000. Required: Start this question on a new page. Provide all analysis to get full marks. Part A [4.5 marks] For each of the items listed above, identify whether the financial instrument should be reported as an asset, liability, equity, or part liability and part equity. Explain your answer. Part B [6.5 marks] For the option purchased on August 1, 2020 (item #3): a) Explain how the purchase of the option reduces Harrison's risk. [2 marks] b) Explain if this option meets the definition of a derivative using relevant guidance as appropriate to support your answer. [3.5 marks] c) Explain how this option should be accounted for in the financial statements of Harrison. Journal entries are not required. [1 mark] Harrison Limited is a public company that reports under IFRS. The company has a September 30, 2020 year end. The company had the following transactions during the 2020 fiscal year: 1. The company issued $300,000 of 4%, 15-year bonds. Each $1,000 bond is convertible into 150 common shares at the option of the bond holder. 2. In June, the company issued 2,000 preferred shares, non-convertible, 4% cumulative dividend, and mandatorily redeemable on June 14, 2024. 3. Harrison purchased a call option from DDR Investments Corporation on August 1, 2020. The option gave Harrison the right to buy 10,000 shares in a third company, Gubbons Media Group (GMG), at a price of $20 per share. The option expires on October 1, 2020. On the day Harrison purchased the option, GMG shares were trading at $20 each. Harrison paid $700 for the options. On August 31, 2020, the GMG shares were trading at $21.75 each and the options were trading at $13,000. On September 15, Harrison settled the options in cash when the GMG shares were trading at $23 and the options were trading at $21,000. Required: Start this question on a new page. Provide all analysis to get full marks. Part A [4.5 marks] For each of the items listed above, identify whether the financial instrument should be reported as an asset, liability, equity, or part liability and part equity. Explain your answer. Part B [6.5 marks] For the option purchased on August 1, 2020 (item #3): a) Explain how the purchase of the option reduces Harrison's risk. [2 marks] b) Explain if this option meets the definition of a derivative using relevant guidance as appropriate to support your answer. [3.5 marks] c) Explain how this option should be accounted for in the financial statements of Harrison. Journal entries are not required. [1 mark]
