FREE Trial

Holder Ltd purchases an options contract from Issuer Ltd that gives Holder Ltd the right to acquire 100 000 options

Question:

Holder Ltd purchases an options contract from Issuer Ltd that gives Holder Ltd the right to acquire 100 000 options in Torquay Ltd for a price (exercise price) of $10.00 per share. When the contract was exchanged the price of Torquay Ltd shares was $9.00 each. The option entitles Holder Ltd to exercise the options and buy the shares any time within the next six months. If the options are not exercised within the six-month period, then the options will expire.

Determine whether a financial liability or financial asset exists from the perspectives of Holder Ltd and Issuer Ltd. Further, if the price of shares in Torquay Ltd falls to $5.00, with the result that it is improbable that Holder Ltd will ever exercise the options, will this change the classification of the options as either financial assets or financial liabilities?

This problem has been solved!


Do you need an answer to a question different from the above? Ask your question!

Step by Step Answer:

Answer rating: 100% (5 reviews)

Initially when Holder Ltd purchases the options contract from Issuer Ltd the classification of the options from the perspectives of Holder Ltd and Iss…View the full answer


answer-question
Answered By
tutor-profile-image
Faith Chebet
In the past two years many of my students have excell with the knowledge I taught them.
0.00 0 Reviews 10+ Question Solved
Related Book For  answer-question
Financial Accounting

Financial Accounting

ISBN: 9781743767382

9th Edition

Authors: Craig Deegan

See More Books
Question Details
Chapter # 14- Accounting treatment for financial instruments
Section: Review question
Problem: 46
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Question Posted: September 05, 2023 14:58:12
See More Questions

Students also viewed these Business questions

Q:
Holder Ltd purchases a option contract from Issuer Ltd that gives Holder Ltd the right to acquire 100 000 options in Torquay Ltd for a price (exercise price) of $10.00 per share. When the contract...
A:
For holder Ltd This derivative contract gives an option for the h......
Q:
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
A:
Answer 12 A A bond s coupon rate sometimes abbreviated simply to coupon isn t affected by its price B However the coupon rate influences the bond s price by influencing the bond s competitiveness and......
Q:
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
A:
Click to View...
Q:
Locate the centroid of the region bounded by the given curves. about x = 5, y = 2x2, y = 0, x = 5 < UseHorizontal ElementOf Area > x = 5 y = 2x? y = 0
A:
Click to View...
Q:
Reread the "Your Turn 1-2" box (Implementing a Satellite Data Network). Create a list of the stakeholders that should be considered in a stakeholder analysis of this project.
A:
A list of stakeholders would include a......
Q:
Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi's review will focus on the petty cash account and the bank reconciliation for the month ended May 31,...
A:
Bill Jovi is reviewing the cash accounting for Nottleman a Petty Cash......
Q:
Apply the ESD equation to the methanol + benzene system and compare to the data in Perrys Handbook based on matching the bubble pressure at the azeotropic point. Prepare a T-x-y diagram and determine...
A:
Click to View...
Q:
Major League Bat Company manufactures baseball bats. In addition to its goods in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as...
A:
Part 1 July journal entries a Raw Materials Inventory 125 000 Cash 125 000 Purchased raw materials for cash b Goods in Process Inventory 52 440 Factory Overhead 10 000 Raw Materials Inventory 62 440 T......
Q:
1. What is the effect of halving the voltage of a processor on its dynamic power? What about its leakage power? Rewrite the answers if the frequency of the processor goes in half. (20 points) 2....
A:
1 When you halve the voltage of a processor Dynamic Power Dynamic power consumption is proportional to the square of the voltage So if you halve the v......
Q:
Bag Ladies, Inc. manufactures two kinds of bags-totes and satchelo. The company allocates manufacturing overhead using a single plantwide rate with direct labor cost as the allocation base. Estimated...
A:
ANSWER 12480 Explanations Total Direct Labor Cost Total Direct Labor Cost of Totes Tot......
Q:
Dorothy Wax has 10 000 shares in Skeg Ltd. The current price per share in Skeg Ltd is $9.50. Dorothy would like to sell the shares immediately, but certain restrictions have been imposed upon her...
A:
To determine how much Dorothy ultimately receives from the above transactions we need to calculate t......
Q:
AASB 132 requires the issuing entity to classify a financial instrument, or its component parts, as a liability or as equity in accordance with the economic substance of the instrument at the time of...
A:
What this means is that it does not matter what the security i......
Q:
The stockholders equity accounts of Falk Company at January 1, 2012, are as follows. Preferred Stock, 6%, $50 par $600,000 Common Stock, $5 par 800,000 Paid-in Capital in Excess of ParPreferred Stock...
A:
a Journal Entrie s July 1 Retained Earnings 400 000 Dividends Payable 400 000 To record declaration of cash dividend on common stock Aug 1 Depreciatio......
Q:
In the chapter opener, you learned that Facebook sold shares to investors at $38 each in its IPO. One year later, its stock price was hovering around $26. What was the percentage drop in Facebook...
A:
To calculate the percentage drop in Facebook shares in its first year as a public company you can us......
Q:
Assume you own stock in a company, and you are in the process of selling the stock to another investor. Since the transaction will occur between the buyer and the seller, the company will receive no...
A:
While it s true that the company doesn t directly receive cash flows from the sale of its shares between individual investors the company s management......
Q:
In the chapter opener, you read about the steep decline in home prices in Phoenix. Starting in August 2011, home prices there began to rebound. Consider a buyer who purchased a home in Phoenix that...
A:
To calculate the buyer s equity in her home you can use the following formula Equity Current......
Q:
Emphasis on Cash Flows Worldwide Rugs is a rug importer located in the United States that resells its import products to local retailers. Last year, Worldwide Rugs imported $2.5 million worth of rugs...
A:
a To calculate the accounting profit you need to consider the revenue and expenses In this case Reve......
Q:
Liability comparisons John Bailey invested $50,000 in The Entertainment Company seven years ago. He is concerned about the future of the firm as the profits have plummeted over the last four years....
A:
a If John Bailey is the sole proprietor of The Entertainment Company the financial implication of the firm going bankrupt is that John would be person......
Q:
How do free cash flows and the weighted average cost of capital interact to determine a firms value? MINI CASE Assume that you recently graduated with a degree in finance and have just reported to...
A:
A firms value is the sum o......
Q:
You are thinking of investing in one of two companies. In one annual report, the auditors opinion states that the financial statements were prepared in accordance with generally accepted accounting...
A:
When financial statements are prepared in accordance with generally accepted a......
Handbook Of High Frequency Trading 1st Edition - ISBN: 0128022051 - Free Book