Which statement best describes the "zero common equity method"?

A) Under this method of accounting, the common share component is

considered the least reliably measured amount.

• B) Under this method of accounting, for a convertible bond, all of the bond value would be counted as a liability.
• c) Under this method of accounting, for a convertible bond, the issuing entity would record a liability for the estimated value of the bond without the conversion feature.
• D) Under this method of accounting, for a convertible bond, an estimate would be made of the fair value of all components and allocated proportionally to all components.

• 2. What is an option?

  A) A contract that is derived from some other underlying quantity, index, asset

  or event.

  • B) A contract that gives the holder the right to buy or sell something at a specified price.
  • C) A contract that gives the holder the right to sell an instrument at a pre- specified price.
  • D) A contract that gives the holder the right to acquire an instrument at a pre- specified price.

  • 3. Which statement best describes the "incremental method"?

    • A) Under this method of accounting, for a convertible bond, the issuing entity would record a liability for the estimated value of the bond without the conversion feature.
    • B) Under this method of accounting, the common share component is considered the most reliably measured amount.

    c) Under this method of accounting, for a convertible bond, an estimate would

    be made of the fair value of all components and allocated proportionally to all components.

    D) Under this method of accounting, for a convertible bond, all of the bond value would be counted as a liability.