ADVANCED ACCOUNTING
13th Edition
ISBN: 9781264046263
Author: Hoyle
Publisher: MCG
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Chapter 9, Problem 41P
Based on past experience, Leickner Company expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 marks on March 15, 2018. To hedge this
- a. Prepare all
journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials, assuming that December 31 is Leickner’s year-end and that the raw materials are included in the cost of goods sold in 2018. - b. What is the overall impact on net income over the two accounting periods?
- c. What is the net
cash outflow to acquire the raw materials?
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Moonview Company uses approximately 200,000 units of raw material in its manufacturing operations.
On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2022 at a strike price of ₱25 per unit.
The entity paid ₱20,000 for the call option. The entity designated the call option as a cash flow hedge against price fluctuation for its July purchase.
The market price of the raw materials is ₱28 on December 31, 2021 and ₱21 on July 1, 2022.
1. What is the derivative asset on December 31, 2021?a. 600,000b. 580,000c. 20,000d. 0
2. What is the derivative liability on July 1, 2022?a. 800,000b. 400,000c. 780,000d. 0
3. What is the cost of purchases on July 1, 2022?a. 5,000,000b. 4,980,000c. 4,200,000d. 4,220,000
A company enters into a contract to build a factory for a customer. The agreed price is P2M
and the specified completion date is 31 October 2019. However, the contract provides that
the company should receive an incentive payment of a further P250,000 if the factory is
completed by 30 September 2019. Similarly, the price will be reduced by P250,000 if the
factory
The company estimates that there is a 15% probability that the factory will be completed
by 30 September 2019, an 80% probability that it will be completed in October 2019 or
November 2019 and a 5% probability that it will not be completed until after 30 November
is
not
completed
until
after
30
November
2019.
2019.
20. What is the expected value of the transaction price for this contract?
a.
P2M
C.
P1.975M
b.
P2.125M
d.
P2.025M
Use the following information for Problems 18 through 20.On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two-month forward contract to sell 1,000,000 pesos at a forward rate of $0.12 per peso. Micro designates the forward contract as a fair value hedge of the firm commitment to receive pesos, and the fair value of the firm commitment is measured by referring to changes in the peso forward rate. Micro delivers the parts and receives payment on July 31, 2017, when the peso spot rate is $0.118. On June 30, 2017, the Mexican peso spot rate is $0.123, and the forward contract has a fair value of $2,400.What is the net impact on Micro’s net income for the quarter ended June 30, 2017, as a result of this forward contract hedge of a firm commitment?a. $–0–.b. $2,400 increase in net income.c.…
Chapter 9 Solutions
ADVANCED ACCOUNTING
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- Carla Vista Industries has purchased equipment from a Brazilian firm for a total cost of 295,000 Brazilian reals. The firm has to pay in 30 days. Citibank has given the firm a 30-day forward quote of $0.3102/real. Assume that on the day the payment is due, the spot rate is $0.3418/real. How much would Carla Vista save by hedging with a forward contract? (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.) Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you’ve been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.)arrow_forwardUse the following information for Problems 18 through 20.On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two-month forward contract to sell 1,000,000 pesos at a forward rate of $0.12 per peso. Micro designates the forward contract as a fair value hedge of the firm commitment to receive pesos, and the fair value of the firm commitment is measured by referring to changes in the peso forward rate. Micro delivers the parts and receives payment on July 31, 2017, when the peso spot rate is $0.118. On June 30, 2017, the Mexican peso spot rate is $0.123, and the forward contract has a fair value of $2,400.What is Micro’s net increase or decrease in cash flow from having entered into this forward contract hedge?a. $–0–.b. $1,000 increase in cash flow.c. $1,500 decrease in cash flow.d. $2,000…arrow_forwardUse the following information for Problems 18 through 20.On June 1, 2017, Micro Corp. received an order for parts from a Mexican customer at a price of 1,000,000 Mexican pesos with a delivery date of July 31, 2017. On June 1, when the U.S. dollar–Mexican peso spot rate is $0.115, Micro Corp. entered into a two-month forward contract to sell 1,000,000 pesos at a forward rate of $0.12 per peso. Micro designates the forward contract as a fair value hedge of the firm commitment to receive pesos, and the fair value of the firm commitment is measured by referring to changes in the peso forward rate. Micro delivers the parts and receives payment on July 31, 2017, when the peso spot rate is $0.118. On June 30, 2017, the Mexican peso spot rate is $0.123, and the forward contract has a fair value of $2,400.What is the net impact on Micro’s net income for the quarter ended September 30, 2017, as a result of this forward contract hedge of a firm commitment?a. $–0–.b. $115,000 increase in net…arrow_forward
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