1) Lagos Inc. issued bonds with detachable warrants for $5,000,000 (par value). The bonds have a present value of $4,934,400. The fair value of the warrants is determined to be $220,000. Using the relative fair value method, how much of the issue price should be allocated to the warrants?

a) $211,200

b) $220,000

c) $65,600

d) $213,500

2) On July 2, 2020, Martineau Ltd. issued $6,000,000 (par value), 9%, ten-year convertible bonds at 98. The bonds were dated April 1, 2020 with interest payable quarterly on July 1, October 1, January 1 and April 1. If the bonds had NOT been convertible, they would have sold for 96.1. The bond discount is amortized on a straight-line basis. On April 1, 2021, $1,200,000 of these bonds were converted into 500 no par common shares. Accrued interest was paid in cash at the time of conversion.
What is the amount of the unamortized bond discount on April 1, 2021 relating to the bonds that were converted?

a) $46,800

b) $44,400

c) $43,200

d) $64,246

On May 1, 2020, Wong Ltd. issued $500,000, 10 year, 7% bonds at 103. Twenty detachable warrants were attached to each $1,000 bond, which entitled the holder to purchase one of Wong’s no par value common shares for $40. At this time, similar bonds without warrants were selling at 96. It was determined that the fair value of Wong’s common shares was $35, but the value of the warrants was NOT determinable. Wong is a private corporation that follows ASPE, but does NOT use the residual method.

On May 1, 2020, Wong should credit Bonds Payable for

a) $515,000.

b) $480,000.

c) cannot be determined from the information given.

d) $500,000.

On July 1, 2020, Juba Inc. issued 10,000, $7 non-cumulative, no par value preferred shares for $1,050,000. Attached to each share was one detachable warrant, giving the holder the right to purchase one of Juba’s no par value common shares for $30. At this time, the shares without the warrants would normally sell for $1,025,000, while the market price of the warrants was $2.50 each. On October 31, 2020, when the market price of the common shares was $33.50 and the market value of the warrants was $3.00, 4,000 warrants were exercised. Juba adheres to IFRS. As a result of the exercise of the warrants and the issuance of the related common shares, what journal entry would Juba make?

a)

Cash		$120,000
Contributed Surplus—Stock Warrants		$15,000
Common Shares				$135,000

b)

Cash		$120,000
Contributed Surplus—Stock Warrants		$25,000
Common Shares				$145,000

c)

Cash		$120,000
Contributed Surplus—Stock Warrants		$10,000
Common Shares				$130,000

d)

Cash		$120,000
Common Shares				$120,000