Becker Derivatives

7/24/2019 Becker Derivatives

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On Januay 1. Year 1.XZInc jrchased a call optio contract 0 the stock of ABC Company that givesXZthe right to jrchase 1.000 sharCompany stock at $50 r share anytime in the next &0 days. XZ paid a emium of /share to enter into the option. XZexercised the optFebruay 6. Year 1. when the ABC stock is selling for $60 r share Enter the approiate amounts into the shaded cells.

What i s the underlying?

What i s the notional amount?

What i s the initial net investment?

What is the settlement amount?

Which of the llowing are possible settlement optios when the option is exercised on Februay 6, Year 1 (check all thatay)?

o 5 The option writer delivers 1,000 shares of ABC Company stock toXZand receives $50(0

o 6 The optionwriter can pay $10000 toXZto settle the cotract

o 7 The optionwriter has the optio to jll out of the contract rather than incur loss.

1000 shares

toDD shares


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On August 1. Year 1.XZ entered into a foard cotract in hich it agreed to sell 100.000 Februay 28. Year 2. for $1 4f On Februaythe s pot exchange rate is $1 5f Enter the awopriate am


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In order to hedge etain risks, XI Company entered into the following der"ative ontrats during the urrent y ear AI of the hedging relationshighly etive_ For eah der"ative, determine the hedging designation and the impat on urrent year earnings and/or other omprehensive inDouble-ik on the shaded ells in Colu B and selet the appropriate hedging designation om the list prded. Enter the aopriate amoColu C and Colu D

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Hegg Desgato

Impact O Impact O

EarRgs 0 Fair value hedge1 On Deember 1. the om"ny borrowed 1.000.000 at

Cash flow hedgean annual rate of LIBOR + 3% On that date the ompanyentered into a y-ed reeive-floating inteest rate swap.On Deember 31. the omny hd an unre1lized loss of Foreign urreny15.000 on the swap

2 On Marh , the ompany deided to hedge the risk ( Foreign urrenyhanges in the value ( its intoy using a fuuresontrat On Deember 31 the ompany had an unrealized Foreign urrenygain of $12,000 on the tures ontra t and a $12,050unrealized loss due to a derease in the fair value of theinventoy

3 On July 1. the omny purhased 100% of a Japaneseomny The ntional urreny of the Japaneseomny is the yen_ To hedge against dereases in thevalue of the investment the ompany entered into a foward

reign operation


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Nt:The data required to answer this question is locate< in the tab title


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On Nmber 1 Year 1XZ Company e3t productio o 10,000 Iaels o oil in Januay oYar 2 0; is currently selling r $85 I" barrel To hedge the deease eore the oil is soldXZ takes a sho position in a ard contract r 10,000 Iarrels o oil at $85 per Iarrel to be settl 0 Januay 31 Year 2 Thesettlement rather than the ctu del o oil The oil is sold on Februay 1 r $1 per Iarrel. XZ classies the hedge as a cash ow hedge o the anticipated(recasted oil sales Relevant rd cotrc! ices are as ollows:

Nmber 1 Year 1Deemr 31 Year 1Januay 31 Year 2

B r

$85.00$79.00$1.00


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Asset Retire ment Obligatis U",ate He!

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Haste Waste Inc perates a 4-ac," landfill that news t be ca.nd clsed in Sye.rs 0 Januay 1. Year 6 The ttal ture cst f this estimated t be $710.000 The relevant accretin rate is 6% and the asset ill be depre


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On Januay 1. Vear 1. Johnson (J) Sth (S) and Heny (H) formed a legal Me patnership Initially J contributed $12.000.000. S contribu$18.000.000. and H ctributed $30.000.000 or a [tnership profit and loss sharing ratio 20%. 30%. and 50%. respectively As [t othe [tnership agreement the [tnership will [y H an annual salay $100.000 < verseeing daily business act;ty In addition the [tners ashold receive a 10% guaranteed bonus any [tnership profits pri to distributing an y eamings to the ind;dual [tners The [tnership winterest 2% the [tners capitaalances at each fiscal year end The [tnership generated net profit $4.000.000 during its first year operations

A the beginning Year 2 the [tnership adtted Cunningha (C) as an additial [tner As [t the agreement Cunningham prded acontribution $20.000.000 in retum < a 20% [tnership interest

In the third quater Year 2. S decided to withdraw om the [tnership The [tnership deterned that the air value the [tnerships ass$110.000.000 and the adjusted profit/loss ratios or J S H and C were now 15%. 25%. 40%. and 20%. respectively

Ans

r th qustions blo

insing th orrt dollar amoun in th shadd lls

" fx

,

1 What is the total ofit distribution made

to H inYea,

1?

2 Using the bo". method calculate thechange in ctal r paners J S and Hwhen C was admitted as new paner in

oodwill


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FASBASC- - .

Some examples of cOITectJy fted FAS ASC resposes are2---, 323-74-S2-, 2-0A 2---99 and

28A

;,ectios 456


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tatrt


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A recently issued demgraphic re indicates that there is a reable prbabilitythat L ambet's siness may be adersely imJted in tThe cmpans ctrller wants t begin accruing a general cntingency rese nw r unspecied siness ctingencies. such as the decline in siness that may ccur in the ture Find authritat;e guidance as t whether r nt such an accrual is allwed underG

Stltits: Becke r Educt

ype the topic here. Correctly orated FASBASC topics are 3 Of4d igs

FASBASC

;,ectins 345

ASC resposes are,99a


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A recently issued demgraphic re indicates that there is a reasable prbabilitythat L ambet's siness may be adversely imJted in tThe cmnys ctrller wants t begin accruing a general cntingency rese nw r unspecied siness ctingencies. such as the decline in siness that may ccur in the ture Find authritat;e guidance as t whether r nt such an accrual is allwed underG

Strt


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A recently issued demgraphic rep indicates that there is reable prbabilitythat L ambet's siness may be adversely imJted in tThe cmpanys ctrller wants t beg;n accruing a general cntingency rese nw runspe


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A recently issued demgraphic rept indicates that there is a renable prbabilitythat L ambet's siness may be rsely imJted in tThe cmpanys ctrller wants t begin accruing a general ctingency rese nw! unsied business cingn

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