江西財經(jīng)大學高級財務(wù)會計國際學院題庫chapter_13

1、Advanced Accounting, 11e (Beams/Anthony/Bettinghaus/Smith)Chapter 13 Accounting for Derivatives and Hedging ActivitiesMultiple Choice Questions1) Which of the following hedging strategies would a business most likely use?A) An importer will want to hedge his foreign denominated accounts receivable a

2、nd will purchase forward contracts to hedge an exposed net asset position.B) An importer will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.C) An exporter will want to hedge his foreign denominated accounts recei

3、vable and will purchase forward contracts to hedge an exposed net liability position.D) An exporter will want to hedge his foreign denominated accounts payable and will purchase forward contracts to hedge an exposed net liability position.Answer: BObjective: LO2Difficulty: Easy2) A highly-effective

4、hedge of an existing asset or liability that is reported on the balance sheet would be recorded usingA) Modified Cash Basis Accounting.B) Critical Term Hedge Analysis.C) Fair Value Hedge Accounting.D) Hedge of Net Investment in Foreign Subsidiary.Answer: CObjective: LO2Difficulty: Easy3) Which of th

5、e following is not an approach appropriate for hedge accounting?A) Cash Flow Hedge AccountingB) Critical Term Hedge AccountingC) Fair Value Hedge AccountingD) Hedge of Net Investment in Foreign SubsidiaryAnswer: BObjective: LO1, 2Difficulty: Easy4) If a financial instrument is classified as a cash f

6、low hedge, thenA) its gains or losses are reported in the income statement if a fiscal year-end occurs before the settlement date.B) it is classified as a held-to-maturity asset.C) it does not require a notional amount.D) its gains or losses are reported in the balance sheet if a fiscal year-end occ

7、urs before the settlement date.Answer: DObjective: LO1Difficulty: Easy5) When a cash flow hedge is appropriate, the effective portion of the gain or loss on the derivative isA) deferred using other comprehensive income.B) recognized immediately at the time the agreement is made.C) recognized over ti

8、me, amortized over the period of the agreement.D) recognized over time, offset by the fluctuation in the value of the hedged asset or liability.Answer: AObjective: LO1Difficulty: Easy6) Barnes Company entered into a forward contract during the current year to hedge the risk of a material supply cost

9、 increase. Based on the current market, at year-end the present value of the estimated amount they will have to pay in ten months is $750,000. What entry would be recorded at year-end closing, assuming that no amount was recorded for this contract until this time?A) Forward Contract (+A)$750,000Othe

10、r Comprehensive Income (+SE)$750,000B) Forward Contract (+A)$750,000Earnings (+SE)$750,000C) Other Comprehensive Income (-SE)$750,000Earnings (+SE)$750,000D) Other Comprehensive Income (-SE)$750,000Forward Contract (+L)$750,000Answer: DObjective: LO3Difficulty: Moderate7) A forward contract used as

11、a cash flow hedge will be recorded as an asset ifA) the holder is expecting to receive a payment as a result of the contract.B) the holder is accounting for the hedged instrument as a fair value hedge.C) the holder is hedging the net investment in a foreign entity.D) the holder is using the alternat

12、e accounting method and deferring all gains or losses from the hedge.Answer: AObjective: LO1Difficulty: Easy8) A fair value hedge differs from a cash flow hedge because a fair value hedgeA) cannot be used for firm purchase or sales commitments.B) is not recorded unless it is a highly-effective hedge

13、.C) records gains or losses in the value of the derivative directly to earnings of the company.D) defers the gains or losses in the value of the derivative using Other Comprehensive Income.Answer: CObjective: LO3Difficulty: Easy9) The purchase price of an option contract is typically recorded asA) a

14、n expense.B) an asset.C) an amortized cost.D) a component of shareholders equity.Answer: BObjective: LO3Difficulty: Easy10) Taydus Corporation, a U.S. corporation, sold goods on December 2 to a company overseas, and is now carrying a receivable denominated in euros. Taydus signed a 60-day forward co

15、ntract on that same date to sell euros. The spot rate was $1.40 on the date they signed the contract and the 60-day forward rate was $1.36. At the end of that month when they closed the books at their fiscal year-end, the spot rate was $1.42 and the 30-day forward rate was $1.40. Assume this is a fa

16、ir value hedge. The forward contract will not be settled net. What would be reported by Taydus for the year ending December 31?A) Net exchange gainB) Net exchange lossC) Deferred exchange gainD) Deferred exchange lossAnswer: BExplanation: B) The spot rate increased $.02, resulting in a gain on the r

17、eceivable.The forward rate increased $.04, resulting in a larger loss on the forward, thus they experienced a net exchange loss.Objective: LO4Difficulty: Moderate11) Cirtus Corporation, a U.S. corporation, placed an order for inventory from a Mexican supplier on September 18 when the spot rate was $

18、0.0840 = 1 peso. The invoice price will be denominated in pesos. At that time, they entered into a 30-day forward contract (designated as a fair value hedge of the firm commitment to purchase) to purchase 860,000 pesos at a forward rate of $0.0810. On October 18 when the inventory was received, the

19、spot rate was $0.0890. At what amount should the inventory be carried on Cirtus books?A) $69,660B) $72,240C) $76,540D) $860,000Answer: AExplanation: A) Inventory = 860,000 .081 = $69,660Objective: LO4Difficulty: Moderate12) When preparing their year-end financial statements, the Warner Company inclu

20、des a footnote regarding their hedging activities during the year. Which of the following is not required to be disclosed?A) How hedge effectiveness is determined and assessedB) The specific types of risks being hedged, and how they are being hedgedC) Alternative hedging options declinedD) The net g

21、ain or loss reported for the period for fair value hedges and where in the financial statements it is reportedAnswer: CObjective: LO5Difficulty: Moderate13) International accounting standards differ from U.S. Generally Accepted Accounting Principles in that International standardsA) require that fir

22、m sale or purchase commitments are accounted for as fair value hedges.B) require that firm sale or purchase commitments are accounted for as cash flow hedges.C) state that firm sale or purchase commitments may not be treated as a hedged transaction.D) permit firm sale or purchase commitments to be a

23、ccounted for as either fair value hedges or cash flow hedges.Answer: DObjective: LO6Difficulty: Moderate14) On May 1, 2011, Listing Corporation receives inventory items from their Bulgarian supplier. At the same time, Listing signed a forward contract to purchase 75,000 Bulgarian lev in sixty days t

24、o hedge the inventory purchase at $0.738, the 60-day forward rate. Payment for the inventory will be due in sixty days in Bulgarian lev. Assume the forward contract will be settled net and this qualifies as a fair value hedge. The related exchange rates are shown below:DateSpot RateForward Rateto Ju

25、ne 30May 1, 2011$0.7270$0.7380May 31, 2011$0.7350$0.7400June 30, 2011$0.7420$0.7420Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on May 31?A) $150 assetB) $150 liabilityC) $375 assetD) $375 liabilityAnswer: AExplanation: A) Current forward rate:

26、 75,000 lev $0.7400$55,500Contracted forward rate: 75,000 lev $0.738055,350Net change in value150With PV = 1, Net change = asset valueObjective: LO4Difficulty: ModerateUse the following information to answer the question(s) below.On November 2, 2011, Bellamy Corporation sells product to their Danish

27、 customer. At the same time, Bellamy signed a forward contract to sell 200,000 Danish krone in ninety days to hedge the account receivable at $0.1905, the 90-day forward rate. The receivable is expected to be collected in ninety days. Assume the forward contract will be settled net and this is a fai

28、r value hedge. The related exchange rates are shown below:DateSpot RateForward Rateto January 31November 2, 2011$0.1910$0.1905December 31, 2011$0.1920$0.1912January 31, 2012$0.1915$0.191515) Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on Novem

29、ber 2?A) $-0-B) $100 assetC) $100 liabilityD) $38,100 assetAnswer: AObjective: LO4Difficulty: Moderate16) Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on December 31?A) $160 assetB) $160 liabilityC) $140 assetD) $140 liabilityAnswer: DObjective

30、: LO4Difficulty: Moderate17) Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on January 31?A) $-0-B) $ 60 assetC) $160 liabilityD) $200 liabilityAnswer: DObjective: LO4Difficulty: ModerateUse the following information to answer the question(s) bel

31、ow.On December 1, 2011, Thomas Company, a U.S. corporation, purchases inventory from a vendor in Italy for 400,000 euros. Payment is due in 90 days. To hedge the transaction, Thomas signs a forward contract to buy 400,000 euros in 90 days at $1.3670. Thomas uses a discount rate of 6% (present value

32、factor for 30 days = .9950; 60 days = .9901; 90 days = .9851). Assume the forward contract will be settled net and this is a cash flow hedge. Currency exchange rates are shown below:DateSpot RateForward Rateto February 29December 1, 2011$1.3694$1.3670December 31, 2011$1.3642$1.3660January 30, 2012$1

33、.3670$1.3690February 29, 2012$1.3712$1.371218) What is the fair value of the forward contract at December 31, 2011?A) $400.00 liabilityB) $400.00 assetC) $396.04 liabilityD) $396.04 assetAnswer: CExplanation: C) Current forward rate: 400,000 euros $1.3660$546,400Contracted forward rate: 400,000 euro

34、s $1.3670546,800Net change in value(400)PV for 60 days 6%.9901Fair value of forward contract on 12/31/11$ (396.04)Objective: LO4Difficulty: Moderate19) What is the fair value of the forward contract at January 30?A) $796 liabilityB) $796 assetC) $800 liabilityD) $800 assetAnswer: BExplanation: B) Cu

35、rrent forward rate: 400,000 euros $1.369$547,600Contracted forward rate: 400,000 euros $1.367546,800Net change in value800PV for 30 days 6%.9950Fair value of forward contract on 1/30/12$ 796Objective: LO4Difficulty: Moderate20) What is the fair value of the forward contract at February 29?A) $-0-B)

36、$1,654.97 assetC) $1,654.97 liabilityD) $1,680 assetAnswer: DExplanation: D) Current forward rate: 400,000 euros $1.3712$548,480Contracted forward rate: 400,000 euros $1.367546,800Net change in value1,680PV for 0 days 6% 1.0Fair value of forward contract on 2/29/12$1,680Objective: LO4Difficulty: Mod

37、erateExercises1) On November 1, 2011, Portsmith Corporation, a calendar-year U.S. corporation, invested in a purely speculative contract to purchase 1 million yen on January 30, 2012, from the Karoke Trading Company, a Japanese brokerage firm. Portsmith agreed to purchase 1,000,000 yen from Karoke a

38、t a fixed price of $0.0100 per yen. Karoke agreed to transmit 1,000,000 yen to Portsmith on January 30. Net settlement is not permitted. The spot rates for yen are:Nov 01, 2011 1 yen = $0.0097Dec 31, 2011 1 yen = $0.0104Jan 30, 2012 1 yen = $0.0106The 30-day forward rate for yen on December 31, 2011

39、 was $0.0104.Required:Prepare the General Journal entries that Portsmith would record on November 1, December 31, and January 30.Answer: Portsmiths General Journal11/01/11Contract Receivable (yen)10,000Contract Payable10,000(1,000,000 $0.0100)12/31/11Contract Receivable (yen)400Exchange Gain4001,000

40、,000 ($0.0104 - $0.0100)01/30/12Contract Receivable (yen)200Exchange Gain2001,000,000 ($0.0106 - $0.0104)Cash (yen)10,600Contract Payable10,000Cash10,000Contract Receivable (yen)10,600Objective: LO4Difficulty: Moderate2) On November 1, 2011, Ross Corporation, a calendar-year U.S. corporation, invest

41、ed in a purely speculative contract to purchase 1 million euros on January 30, 2012, from Trattoria Company, an Italian brokerage firm. Ross agreed to purchase 1,000,000 euros from Trattoria at a fixed price of $1.420 per euro. Trattoria agreed to transmit 1,000,000 euros to Ross on January 30, 2012

42、. Net settlement is not permitted. The spot rates for euros are:Nov 01, 2011 1 euro = $1.415Dec 31, 2011 1 euro = $1.395Jan 30, 2012 1 euro = $1.410The 30-day futures rate for euros on December 31, 2011 was $1.405.Required:Prepare the General Journal entries that Ross would record on November 1, Dec

43、ember 31, and January 30.Answer: Rosss General Journal11/01/11Contract Receivable (euro)1,420,000Contract Payable1,420,000(1,000,000 $1.420/euro)12/31/11Exchange Loss15,000Contract Receivable (euro)15,0001,000,000 ($1.405 - $1.420)01/30/12Contract Receivable (euro)5,000Exchange Gain5,0001,000,000 ($

44、1.410 - $1.405)Cash (euro)1,410,000Contract Payable1,420,000Cash1,420,000Contract Receivable (euro)1,410,000Objective: LO4Difficulty: Moderate3) On June 1, 2011, Dapple Industries purchases an option contract for $5,000 on 10,000 gallons of aviation gas to minimize its purchasing cost price exposure

45、. At the time, the market price is $2.50 per gallon and the option price of $2 per gallon will expire 6 months later. Dapple can exercise the option at its discretion. When Dapple prepares quarterly reports on June 30, Dapple is still holding the option. On June 30, the market price of aviation gas

46、is $4.50 per gallon. The option is to be settled net.On August 1, Dapple exercises the option when the gas market price is $5.00 per gallon and purchases 40,000 gallons of gas. On August 15, Dapple uses all of the gas on a charter flight.Required:What are Dapples journal entries with regard to the a

47、viation gas option? Assume this is a cash flow hedge. Ignore the time value of money.Answer: Dapples General Journal6/01/11Aviation gas contract option5,000Cash5,0006/30/11Aviation gas contract option20,000Other comprehensive income20,000($4.50-$2.00) 10,000 gallons =fair value debit balance of $25,

48、000;unadjusted debit balance = $5,000from June 1 entry.)8/01/11Cash30,000Aviation gas contract option25,000Other comprehensive income5,000(Net settlement = ($5 - $2) 10,000 gallons = $30,000 received)Aviation gas inventory200,000Cash200,000(40,000 gallons $5 per gallon)8/15/11Cost of goods sold200,0

49、00Aviation gas inventory200,000Other comprehensive income25,000Cost of goods sold25,000Objective: LO3Difficulty: Difficult4) On November 1, 2011, Moddel Company (a U.S. corporation) entered into a 90-day forward contract to purchase 200,000 British pounds. The purpose of the forward contract is to h

50、edge a commitment to purchase special equipment on January 30, 2012 from a British firm Jeckyl Inc. The invoice price on the purchase commitment is denominated in British pounds. The forward contract is not settled net. Assume Moddel uses a 12% interest rate. Use a fair value hedge.The relevant exch

51、ange rates are stated in dollars per pound:Forward RateSpot Rateto Jan. 30, 2012November 1, 2011$1.32$1.35December 31, 2011$1.47$1.50January 30, 2012$1.55-Required:1.What journal entry did Moddel record on November 1, 2011?2.What journal entries did Moddel record on December 31, 2011?3.What journal

52、entries did Moddel record on January 30, 2012 if the purchase was made?Answer: 11/01/11Contract receivable (pounds)270,000Contract payable270,000(200,000 $1.35)12/31/11Contract receivable (pounds)30,000Exchange gain30,000200,000 ($1.50 - $1.35)Exchange loss30,000Change in value of firm commitment in

53、 pounds30,000200,000 ($1.50 - $1.35)01/30/12Exchange loss10,000Change in value of firm commitment in pounds10,000200,000 ($1.55 - $1.50)Contract receivable (pounds)10,000Exchange gain10,000200,000 ($1.55 - $1.50)Contract payable270,000Cash270,000Cash (pounds) 200,000 $1.55310,000Contract receivable

54、(pounds)310,000Equipment270,000Change in value of firm commitment40,000 in poundsAccounts payable (pounds)310,000Accounts payable (pounds)310,000Cash (pounds)310,000Objective: LO3Difficulty: Difficult5) On November 1, 2010, Mayberry Corporation, a U.S. corporation, purchased from Cantata Corporation

55、, a Mexican company, some machinery that cost 1,000,000 pesos. The invoice was payable in pesos on January 30, 2011. To hedge against rapid changes in the peso, Mayberry entered into a forward contract on November 1, 2010 with AB Trader & Company, a US brokerage and investment firm. The contract specified that Mayberry would buy 1,000,000 pesos from AB Trader at $0.084 per peso for settlement on January 30, 2011.Assume that all three companies are subject to the same accounting standards and have December 31st year-ends. The spot rates for pesos