Northern Nickel Explorers Ltd. Northern Nickel Explorers Ltd. (NNEL) is a start-up company, closely held by a small group of successful businesspeople, geologists, and engineers. NNEL is a junior mining company that explores for gold and silver. During its first year of operations, the company focused on raising capital and purchasing assets. Jack Gerikyan, the CFO, is preparing the financial statements for the December 31, 2020 year end. Jack is determining whether the company should adopt ASPE or IFRS. Management does not expect to go public anytime in the near future. However, management is working with a major financial institution in the hopes of securing long-term debt. Therefore, Jack would like to present a strong statement of financial position and favorable debt to equity ratio. During the year, the company financed initial operations by issuing the following instruments:
1. At the beginning of the year, the company issued $500,000 10-year bonds at par. The holder of the bonds can convert $10,000 in bonds into cash based on the performance of the company. Specifically, each $10,000 bond can be converted into cash at the rate of 10% of net income. Draft financial statements reveal net income of $250,000.
2. On January 1, the company issued $2.5 million of six-year, zero-interest-bearing notes along with warrants to buy 1.25 million common shares for $10 per share. The company received $1.9 million for the notes and warrants. If offered alone, the notes would have been issued to yield 9% to the creditor. The warrants are valued at $550,000 with an option pricing model.
3. On January 1, the company issued $1.5 million of five-year, 6% convertible bonds at par value. Each $1,000 bond is convertible into 100 common shares. A similar bond (without conversion feature) would have been issued at a market yield of 9%. On December 31, $200,000 worth of bonds were converted to common shares.
4. On April 1, the company issued 15,000 8% noncumulative, retractable preferred shares for $100 per share. The shares are retractable by the holder on or after September 1 of the current year, and redeemable at the option of the company on or after September 2 of the current year. Commencing on September 2 the company is required to purchase 10% annually of the total outstanding preferred shares at $105 per share. VINDOW
. 5. On March 1, the company issued 50,000 preferred shares with a 5% cumulative dividend for $10 per share. The preferred shares are redeemable, but not retractable. In addition, the preferred shares can be converted into common shares at any time, at a ratio of 1-to-1.
6. During the year, the company issued 200,000 common shares for $5 per share.
Required Assume the role of Jack Gerikyan, and prepare a report to the board of directors that discusses the recognition, measurement, and presentation of the financial instruments issued.