Possible Quiz Questions and Answers for Class 06

Please keep your answers to all possible quiz questions for the entire semester. They may reappear in future quizzes and they may help in your course project.

If a case assignment or other question points to a particular section of a textbook chapter or other reading section, you are responsible to take notes on that particular section in its entirety.

If a case assignment or other question points to a particular section of a textbook chapter or other reading section, you are responsible to take notes on that particular section in its entirety.

The Excel questions for this week are on the TUCC Drive J:coursesacct5341assignsfas133

Remember that your partnership must go over some or all these questions with the ACCT 5341 Teaching Assistant and fill out the attest.htm form.

File 1 (HTML) Question 01

What are the implications in SFAS 133 for denomination in a foreign currency of an acquired asset or liability?

[Hint: See Paragraph 29g and 29h beginning on Page 20 of SFAS 133.]

g. If the hedged transaction is the forecasted purchase or sale of a nonfinancial asset, the designated risk being hedged is (1) the risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates or (2) the risk of changes in the cash flows relating to all changes in the purchase price or sales price of the asset (reflecting its actual location if a physical asset), not the risk of changes in the cash flows relating to the purchase or sale of a similar asset in a different location or of a major ingredient. Thus, for example, in hedging the exposure to changes in the cash flows relating to the purchase of its bronze bar inventory, an entity may not designate the risk of changes in the cash flows relating to purchasing the copper component in bronze as the risk being hedged for purposes of assessing offset as required by paragraph 28(b).

h. If the hedged transaction is the forecasted purchase or sale of a financial asset or liability or the variable cash inflow or outflow of an existing financial asset or liability, the designated risk being hedged is (1) the risk of changes in the cash flows of the entire asset or liability, such as those relating to all changes in the purchase price or sales price (regardless of whether that price and the related cash flows are stated in the entity’s functional currency or a foreign currency), (2) the risk of changes in its cash flows attributable to changes in market interest rates, (3) the risk of changes in the functional-currency-equivalent cash flows attributable to changes in the related foreign currency exchange rates (refer to paragraph 40), or (4) the risk of changes in its cash flows attributable to default or changes in the obligor’s creditworthiness. Two or more of the above risks may be designated simultaneously as being hedged. An entity may not designate prepayment risk as the risk being hedged (refer to paragraph 21(f)).

File 1 Question 02

On December 14, 19×1 the HedgedEm Company hedged a forecasted purchase of 10,000 shares of Microsoft Corporation common shares with a forward contract. The contracted forward price is $130 per unit equal to the market price on December 14. On December 31, 19×1, the price of the shares increased by $10 per share. On February 14, 19×2 HedgedEm purchased 8,000 shares with no immediate intention of purchasing the other 2,000 Microsoft shares. The February 14 price was $138 per share. The futures contract was settled for cash using the 10,000 notional amount on February 14.

No entry other than a memorandum entry since there is no mention of a premium or discount on that date.