Reference no: EM132570201

Questions -

Q1. Vernon Corporation offered detachable 5-year warrants to buy one ordinary share (par value €5) at €20 (at a time when the shares were selling for €32). The price paid for 2,000, €1,000 bonds with the warrants attached was €205,000. The market price of the Vernon bonds without the warrants was €180,000, and the market price of the warrants without the bonds was €20,000. What amount should be allocated to the warrants?

a. €20,000

b. €25,000

c. €24,000

d. €20,500

Q2. On December 31, 2018, Gonzalez Company granted some of its executives options to purchase 100,000 shares of the company's €10 par ordinary shares at an option price of €50 per share. The Black-Scholes option pricing model determines total compensation expense to be €750,000. The options become exercisable on January 1, 2019, and represent compensation for executives' services over a three-year period beginning January 1, 2019. At December 31, 2019 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2019 as a result of this transaction under the fair value method?

a. €250,000 increase.

b. €750,000 decrease.

c. €250,000 decrease.

d. €0.