Instructions a) Prepare the entry to record the interest expense at April 1, 2018. Assume that interest payable was credited when the bonds were issued (round to nearest dollar). (8 marks) b) Prepare the entry to record the conversion on October 1, 2018. Use the book value method. Assume that the entry to record amortization of the bond premium/discount and interest payment has been made. (6 marks) QUESTION 7 (6 MARKS) You are the newly appointed VP Finance of a multinational corporation. You are required to provide a succulent explanation of derivative instruments to the Board of Directors. QUESTION 8 (20 MARKS) On November 1, 2015, London Corp. adopted a stock option plan allowing certain of their executives to purchase a total of 30,000 common shares. The options were granted on January 2, 2016, and were exercisable four years after the grant date (Jan 2, 2020), as long as the executives were still employees. The options expire eight years from the grant date. The exercise price was set at $46 and, using an option pricing model to value the options, the total compensation expense was estimated to be $510,000. At January 2, 2016, the market price of the shares was $50. On January 1, 2017, 3,000 options were terminated (forfeited) when an employee left the company. The market value of the shares at that date was $32. All the remaining options were exercised during 2017: 17,000 on January 3 when the market price was $62, and 10,000 on May 1 when the market price was $77. Instructions a) Explain briefly the intrinsic value and the time value of the stock option. (2 marks) b) Prepare journal entries relating to the stock option plan for the years 2016 through 2019. Assume that the employees perform services equally from 2016 through 2019. Year end is December 31. (14 marks) Discuss the advantages and disadvantages of offering stock options to employees as a means of compensation. (4 marks) QUESTION 9 (12 MARKS) ABC Airlines carried more than 11.9 million passengers to over 160 destinations in 17 countries in 2017 ABC is the descendant of several predecessor companies, including AB Air and BC Airlines. The amalgamated company was created in 1999. In the years that followed, the world air travel industry slumped and caused many airlines to go bankrupt or suffer severe financial hardship. ABC weathered the storm by going through a significant restructuring. One of the changes as a result of the restructuring was to have ABC employees take share options as part of their remuneration. This resulted in employees investing $200 million in the company. The company is privately owned. In 2017, ABC was still suffering losses, now partly due to increased competition and falling seat prices. Losses were $187 million in 2015 and $194 million in 2016. The CEO announced a new restructuring plan that would hopefully put an end to the continuing losses. The plan focused on three areas: improved network profitability, decreased overhead costs, and decreased labor costs. For the latter, employees were asked to accept reduced wages over a four-year period. Just like most companies, ABC is now concerned with increasing market share and maintaining customer loyalty. On the company's website, the following advertisement appears: "Fly 5, Fly Free - Fly five times with ABC Airlines and its worldwide partners and earn a free trip. The more