Tutorial solution week 3 - ACCY200 FINANCIAL ACCOUNTING IIA...

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ACCY200 FINANCIAL ACCOUNTING IIA SPRING 2009 WEEK 3 TUTORIAL SOLUTIONS: LEO Chapter 2 Review Questions 2, 8, 12. Practice Question 2.4, 2.8, 2.15. REVIEW QUESTIONS 2. Explain what can happen if a share issue is ‘underwritten’ and the effect that underwriting can have on achieving a minimum subscription. If a share issue is underwritten, this means that the underwriter, if a share issue is not fully subscribed by the public, guarantees to either purchase the remaining unsubscribed shares or arrange for others to subscribe to the issue. Underwriters are usually financial institutions or brokers, and they will charge the company a commission for their services. If the share issue is fully subscribed, the underwriter will collect the commission and not have to do anything. 8. What is a share option? How does a company account for share options that lapse? A share option is an instrument giving the holder the right to buy or sell a set number of shares in the company by a set date at a set price. Options can be issued for a price or at no cost to the recipient. If issued for a price, an options ledger account is used. On expiry of the exercise date, this account balance is transferred to share capital (for the number of options exercised x the options price) and to lapsed options reserve (for the number of options lapsed x the options price). Where options are issued at a cost, then the amount received for options not yet exercised is disclosed in the statement of financial position as an increase in equity and shown below the company’s share capital. 12. Why would a company wish to buy back its own shares? What conditions
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Tutorial solution week 3 - ACCY200 FINANCIAL ACCOUNTING IIA...

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