Chapter 25 - Acctg For Derivatives & Hedging Transactions Part 2 - A
Chapter 25 - Acctg For Derivatives & Hedging Transactions Part 2 - A
Chapter 25 - Acctg For Derivatives & Hedging Transactions Part 2 - A
2. D
3. A
4. D
1
5. Solution:
Hedged item – None Forward contract (Derivative)
Dec. 15, 20x1
No entry
6. Solution:
Hedged item – Hedging instrument –
Accounts payable Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
Machine………………..4.1M No entry
(100K FCU x ₱41 spot rate)
Accounts payable………..4.1M
2
Dec. 31, 20x1 Dec. 31, 20x1
FOREX loss………....300K Forward contract (asset)...300K
Accounts payable……300K [(₱43 - ₱40) x 100K]
[(₱44 - ₱41) x 100K FCU] Gain on forward contract….300K
to adjust accounts payable for the to record the value of the derivative
increase in spot rate
to record the payment of 100,000 FCU to to record the net cash settlement of the
the supplier forward contract
7. Solution:
Hedged item – Hedging instrument –
Firm sale commitment Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
No entry No entry
to recognize the change in the fair value to recognize the change in the fair value
of the firm commitment of the forward contract
3
Variation 1: Gross settlement – Compound entry
Jan. 15, 20x2 Jan. 15, 20x2
Cash (foreign currency)… 360K Cash (local currency)….....400K
(100K FCUs x ₱3.6 spot rate) Cash (foreign currency)….360K
Firm commitment (liability)..20K Forward contract (asset)… 20K
Loss on firm commitment... 20K Gain on forward contract….20K
Sales……………………..400K
(100K FCUs x ₱4.00 forward rate)
to record the actual sale transaction, to to record the remittance of 100,000 FCUs
recognize the change in the fair value of to the bank in exchange for the pre-
the firm commitment, and to derecognize agreed sale price of ₱400,000
the firm commitment
to record the actual sale transaction, to to record the net settlement of the forward
recognize the change in the fair value of contract
the firm commitment, and to derecognize
the firm commitment
8. Solution:
Hedged item – Hedging instrument –
Firm purchase commitment Forward contract (Derivative)
Oct. 1, 20x1 Oct. 1, 20x1
No entry No entry
to recognize the change in the fair value to recognize the change in the fair value
of the firm commitment of the forward contract
4
Inventory (92 x 1,000). 92,000 Cash [(100 - 92) x 1,000]...8,000
Loss on firm commitment Gain on forward
(8,000 – 3,882)………….. 4,118 contract (8,000 – 3,882)…. 4,118
Firm commitment Forward contract (asset)…3,882
(liability)………………….3,882
Cash ………………………100,000
(100 fixed contract price x 1,000)
to record the actual purchase transaction to net cash settlement of the forward
and to derecognize the firm commitment contract.
9. Solution:
Scenario (a):
Hedged item – Highly probable Hedging instrument –
forecast transaction Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
No entry No entry
to record the actual purchase transaction to recognize the change in the fair value
of the forward contract
Jan. 15, 20x2
Forward contract (liability)… 8K
Cash ……………………….… 8K
5
Scenario (b):
Hedged item – Highly probable Hedging instrument –
forecast transaction Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
No entry No entry
to record the actual purchase transaction to recognize the change in the fair value
of the forward contract
Jan. 15, 20x2 Jan. 15, 20x2
Inventory…………………...8K Forward contract (liability)… 8K
Accumulated OCI…………….8K Cash ……………………….… 8K
to remove the accumulated OCI and to record the net settlement of the
adjust it to the initial cost of the forward contract.
inventory
Feb. 14, 20x2 Feb. 14, 20x2
Cash…………………….360K No entry
Cost of goods sold…… 100K
Inventory……………………100K
Sales………………………..360K
2. A
Solution:
Contract rate 0.70
30-day futures rate on 12/31/01 0.65
Decrease 0.05
Multiply by: No. of Swiss francs 50,000
Loss 2,500
6
3. B
Current price (¥47,850,000 ÷ ¥115) $416,087
Fixed amount of dollars to be received from the ¥47,850,000 $435,000
Deficiency - Receipt 18,913
4. C
Solution:
Current price (¥47,850,000 ÷ ¥105) $455,714
Fixed amount of dollars to be received from the ¥47,850,000 $435,000
Excess – Payment $(20,714)
5. B
Solution:
Current price (¥47,850,000 ÷ ¥115) $416,087
Fixed amount of dollars to be received from the ¥47,850,000 $435,000
Difference - Fair value $18,913
2. Solution:
Hedged item – Hedging instrument –
Accounts receivable Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
7
Accounts receivable…. 4.1M No entry
Sales……………….. 4.1M
(100K FCU x ₱41 spot rate)
3. Solution:
Hedged item – Hedging instrument –
Firm sale commitment Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
No entry No entry
8
Scenario A: Gross settlement – Compound entry
Jan. 15, 20x2 Jan. 15, 20x2
Equipment……………… 400K Cash (foreign currency)….360K
(100,000 x 4 forward rate) Forward contract (liability)… 20K
Firm commitment (asset).. 20K Loss on forward contract…. 20K
Cash (foreign currency)… 360K Cash (local currency)….....400K
(100K FCUs x ₱3.6 spot rate)
Gain on firm commitment... 20K
4. Solution:
Hedged item – Hedging instrument –
Firm purchase commitment Forward contract (Derivative)
Oct. 1, 20x1 Oct. 1, 20x1
No entry No entry
9
5. Solution:
Hedged item – Highly probable Hedging instrument –
forecast transaction Forward contract (Derivative)
Dec. 15, 20x1 Dec. 15, 20x1
No entry No entry
to record the actual purchase transaction to recognize the change in the fair value
of the forward contract
Jan. 15, 20x2 Jan. 15, 20x2
Accumulated OCI… ……….. 8K Cash ………………………. 8K
Sales…………………...…… 8K Forward contract (asset)… 8K
10