How Would Exercise of the Conversion Option,that Was Part of the Initial

question 57

Multiple Choice

How would exercise of the conversion option,that was part of the initial compound instrument,be recorded?

• A)Common stock is recorded at an amount equal to the fair value of the options at date of conversion.
• B)Common stock is recorded at an amount equal to the price determined by the Black-Sholes model.
• C)Common stock is recorded at an amount equal to the market price of the shares on conversion date.
• D)Common stock is recorded at an amount equal to the cash received plus the contributed surplus initially recorded.

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Definitions:

Investee Company

A company in which another entity has an ownership interest, signifying a partial or full influence over the company despite not having full control.

Stock

Equity securities that represent ownership interest in a company, giving shareholders a claim on part of the company's assets and earnings.

Equity Method

An accounting technique used by a company to record its investment in another company based on the change in net assets of the investee.

Vapor Company

A term sometimes used to describe a company that exists in name only and has no actual business operations or significant assets; often associated with speculative investments or fraud.