Financial Accounting: Liabilities & Equities (FA3) Exam Review

FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc.
(2) iv) December 31, 2007
(1) Contributed capital — common share options.......................... 10,000
(1) Contributed capital — lapse of common share options ................. 10,000
(To record the expiration of stock options granted to the CEO)
3 b. On January 1, 2000, SVO granted stock options to the CEO for the purchase of 5,000
of the company’s no-par-value common shares at $62 each.
The options expire on December 31, 2007.
Options are exercisable the earlier of 4 years after issuance (January 1, 2004) or the date
on which the employee reaches the retirement age of 65.
The value of each option at grant date, as determined by using a binomial pricing model,
was $10.00.
$12,500 was charged to compensation expense for the year ended December 31, 2000.
No options are currently exercisable under this plan, which is the only one that SVO
offers.
No options were exercised or lapsed during the year.
Note: 1 mark each to a maximum of 3 marks
Extra:
Indirect method of presentation: 2000-2003
i) Cash flows from operating activities
Net income $ xxx
Add: Compensation expense — stock options 12,500 (non-cash)
In 2005: Cash flows from financing activities
Add: Issuance of common shares for cash $ 248,000
Part 6: Module 5 – Leases
Blueprint: 8-12%
a. What is the difference between a direct financing lease and a sales-type lease for
lessors?
1) For a direct financing lease, collection is not reasonably assured.
2) For a direct financing lease, there are significant costs that are difficult to estimate.
3) For a direct financing lease, the lease does not meet any of the capitalization criteria
for a capital lease.
4) For a direct financing lease, the lessor earns only interest revenue on the lease
arrangement.
NOTE: IFRS terminology is different: direct financing = financing company; salestype
= manufacturer/dealer
Multiple Choice solution: a. 4
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