Question

For various reasons, a corporation may issue options and warrants that give their holder the right to purchase the corporation's common shares at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the current market price. For example, warrants may be issued to:
1. Existing shareholders on a pro rata basis
2. Certain key employees under an incentive stock option plan
3. Purchasers of the corporation's bonds Instructions For each of the three examples of who may receive issues of options and warrants:
(a) Explain why the warrants are used.
(b) Discuss the significance of the price (or prices) at which the warrants are issued (or granted) in relation to (1) the current market price of the company's shares, and (2) the length of time over which they can be exercised.
(c) Describe the information that should be disclosed in the financial statements or notes that are prepared when stock warrants are outstanding in the hands of the three groups of holders listed above.
(AICPA adapted)


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  • CreatedAugust 23, 2015
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