Note Chapter 1, Exercise 8

EXERCISE 10-8
Event A Without the Hedge
Transaction exchange gain (loss)

[100,000 FC × ($1.100 – $1.150)] -5,000
Forward contract gain (loss)
[100,000 FC × ($1.110 – $1.150)]
Net income (loss) effect -5,000
Event B Without the Hedge
Gain on commitment
[(200,000 FC × ($1.172 – $1.150)] discounted 1 month
Sales (200,000 FC × $1.170) 234,000
Adjustment to basis of sale
Cost of inventory -120,000
Transaction exchange gain (loss)
[200,000 FC × ($1.180 – $1.170)] 2,000
Forward contract gain (loss)
[200,000 FC × ($1.180 – $1.150)]
Net income (loss) effect 116,000
Event C Without the Hedge
Sales 100,000
Cost of inventory (68,000 FC × $1.170) -79,560
Adjustment for OCI [60,000 × ($1.150 – $1.170) – premium]
Premium on forward [60,000 × ($1.150 – $1.160)]
Net income (loss) effect 20,440
With the Hedge
-5,000
4,000
-1,000
With the Hedge
4,378
234,000
-4,378
-120,000
2,000
-6,000
110,000
With the Hedge
100,000
-79,560
600
600
21,640
Exercise 10-3
Part 1 1-Feb 30-Apr 31-May

Stike price
Spot rate
Notional amount
Value of option
Intrinsic value
Time Value
Part 2 1-Feb 30-Apr 31-May

Original forward value
Current forward value
Gain (loss) in value
n=1
n=0
Change in value from prior period:
Current present value
Prior present value
Change in present value
Part 3
Exercise 10-4
Date Account Name and Calculations Debit Credit
Stark Inc.
Partial Income Statement
For the Year Ended June 30
Stark Inc.
Partial Balance Sheet
As of June 30
Assets
Liabilities
Exercise 10-6
Hedge of a Commitment Using Hedge of a Forecasted Transa
Forward Contract Option Forward Contract
Prior to transaction date
Effect on Earnings 0 0 0
Subsequent to transaction date
Effect on earnings 0 0 0
Total effect on earnings 0 0 0
a Forecasted Transaction
Option
0
0
Problem 10-2
Balance Sheet Accounts Debit (Credit) 2nd Quarter 3rd Quarter
Income Statement Accounts Debit (Credit)
Use the rows below for your calculations

Problem 10-5
PROBLEM 10-5
For each option March 1 March 31

Notional amount
Strike price
Spot rate
Value of option…
Intrinsic value
Time value
1st Quarter 2nd Quarter

Related to the commitment:
Gain (loss) on commitment
Gain (loss) on option transferred from OCI to offset
gain or loss on commitment
Gain (loss) in time value
Sales revenue
Cost of Sales:
Original cost
Adjustment for change in value of commitment
Additional processing costs
Total impact on earnings
Related to the purchase of equipment:

Gain (loss) in time value
Depreciation expense:
Total impact on earnings……………………………………………….
Related to the note payable:

Total impact on earnings……………………………………………….
May 31
3rd Quarter Total

Problem 10-6
Hypothetical A:
Balance sheet accounts:
Net assets excluding cash balances……………...………………………………………….

Income statement accounts:
Total impact on earnings - Debit (Credit)……………………………………………………….
Hypothetical B:
Net assets excluding cash balances……………………………...……………………………….

Hypothetical C:
Net assets excluding cash balances…………………………………………..…………………….

Hypothetical D:
Net assets excluding cash balances……………………….……………………………………….


Hypothetical E:
Net assets excluding cash balances…………………………………………….…………………….

Dr (Cr) Dr (Cr)
Without With Hedging
Hedging Option Forward
$ 5,000 $ 1,800 $ 2,000

………………….
Problem 10-7
Date Account and Calculations Debit Credit

1st 30 days
Next 30 days
Last 30 days
Part 2 Hedged Not Hedged
Sales revenue
Adjustment to Sales Revenue
Adjusted Salres Revenue
Cost of Sales
Gross Profit Margin
Exchange Loss
Gain on Forward Contract
Contract Discount Expense
Total Impact on Earnings
Target Hedged
Sales revenue
Adjustment to Sales Revenue
Adjusted Salres Revenue
Cost of Sales
Gross Profit Margin
Exchange Loss
Gain on Forward Contract
Contract Discount Expense
Total Impact on Earnings

Note Chapter 1, Exercise 8

Uploaded by

Copyright:

Available Formats

Note Chapter 1, Exercise 8

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Note Chapter 1, Exercise 8

Uploaded by

Copyright:

Available Formats

EXERCISE 10-8

Event A Without the Hedge

Transaction exchange gain (loss)

Event B Without the Hedge

Event C Without the Hedge

With the Hedge

With the Hedge

Part 1 1-Feb 30-Apr 31-May

Part 2 1-Feb 30-Apr 31-May

Date Account Name and Calculations Debit Credit

Subsequent to transaction date

Income Statement Accounts Debit (Credit)

Use the rows below for your calculations

For each option March 1 March 31

1st Quarter 2nd Quarter

Related to the purchase of equipment:

Total impact on earnings……………………………………………….

Related to the note payable:

3rd Quarter Total

Net assets excluding cash balances……………...………………………………………….

Total impact on earnings - Debit (Credit)……………………………………………………….

Net assets excluding cash balances……………………………...……………………………….

Total impact on earnings - Debit (Credit)……………………………………………………….

Total impact on earnings - Debit (Credit)……………………………………………………….

Net assets excluding cash balances……………………….……………………………………….

Total impact on earnings - Debit (Credit)……………………………………………………….

Total impact on earnings - Debit (Credit)……………………………………………………….

$ 5,000 $ 1,800 $ 2,000

Date Account and Calculations Debit Credit

Total Impact on Earnings

You might also like