Accounting for Fair Value Hedge: Put Option PierTwo purchased at par 100 $100 5% bonds of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Accounting for Fair Value Hedge: Put Option PierTwo purchased at par 100 $100 5% bonds of Supplier Inc. on January 1. To avoid exposure to fluctuations in the fair value of Supplier Inc. bonds, PierTwo acquires a 12-month put option on January 1 to sell 100 bonds of Supplier Inc. at a price of $100 per bond. The hedge is considered to be highly effective. On December 31, the market price per share of Supplier Inc. bonds fell to $90 per bond while the value of the put option is estimated to be $1,000. For simplicity, ignore interest on the bonds and assume the purchase price of the put option is zero. Required a. Prepare the entry to adjust the investment to fair value on December 31. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Dec. 31 Cash Account Name b. Prepar Inventory Call Option Futures Contract Note: 11 Put Option Date Dec. 31 Interest Rate Swap Contract Fair Value Adjustment-AFS Fair Value Adjustment-Equity Securities Fair Value Adjustment-HTM Fair Value Adjustment-TS A Save Note Payable Cost of Goods Sold Interest Expense Unrealized Gain or LossOCI Gain on Settlement of Call Option-Income Loss on Settlement of Call Option-Income Unrealized Gain or Loss-Income Dr. Cr. 0 0 0 0 e on December 31. bit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Dr. Cr. 0 0 0 0 Next > Accounting for Fair Value Hedge: Put Option PierTwo purchased at par 100 $100 5% bonds of Supplier Inc. on January 1. To avoid exposure to fluctuations in the fair value of Supplier Inc. bonds, PierTwo acquires a 12-month put option on January 1 to sell 100 bonds of Supplier Inc. at a price of $100 per bond. The hedge is considered to be highly effective. On December 31, the market price per share of Supplier Inc. bonds fell to $90 per bond while the value of the put option is estimated to be $1,000. For simplicity, ignore interest on the bonds and assume the purchase price of the put option is zero. Required a. Prepare the entry to adjust the investment to fair value on December 31. Note: If a journal entry isn't required, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Dec. 31 Cash Account Name b. Prepar Inventory Call Option Futures Contract Note: 11 Put Option Date Dec. 31 Interest Rate Swap Contract Fair Value Adjustment-AFS Fair Value Adjustment-Equity Securities Fair Value Adjustment-HTM Fair Value Adjustment-TS A Save Note Payable Cost of Goods Sold Interest Expense Unrealized Gain or LossOCI Gain on Settlement of Call Option-Income Loss on Settlement of Call Option-Income Unrealized Gain or Loss-Income Dr. Cr. 0 0 0 0 e on December 31. bit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Dr. Cr. 0 0 0 0 Next >
Expert Answer:
Answer rating: 100% (QA)
Accounting for Fair Value Hedge Put Option a Journal Entry to Adjust the Investment t... View the full answer
Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
Posted Date:
Students also viewed these accounting questions
-
I need help on this read from bottom to top. Image transcription text 7"} The second ?nancial statement to prepare is the statement of retained earnings. To determine the ending balance of...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
AutoSave Off File C30 PivotTable Recommended Table Pivot Tables 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 A Enter Home Insert Tables H Price Par Value B X Coupon Rate Payment Frequency...
-
An ideal gas mixture approximation to the makeup of dry air on a percent by volume basis at 100 kPa is as follows: 78 percent N2, 21 percent O2, and 1 percent Ar. Determine the mole fractions, mass...
-
Morgan Leasing Company signs an agreement on January 1, 2025, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6...
-
For the data in Table 12.1, confirm that the Pearson statistic in equation (12.3) is 41.98 . Table 12.1 (12.3) Count Observed (j) (nj) Fitted Counts Using the Poisson Distribution (np;) 01234 6,996...
-
Dorsier Company showed the following adjusted account balances on September 30, 2014: Equipment...
-
What role does emotional intelligence play in facilitating effective conflict resolution processes, particularly in navigating interpersonal dynamics, managing emotional escalation, and fostering...
-
In December 2003, Bam (a city in Iran) was hit by an earthquake. Assume the death toll from the earthquake was 30666 people. The World Health Organization put out a report on the reconstruction of...
-
Consider the one-to-one function f(x) = x3 + x + x + 1 for x -1. x+x+x+1 (a) Find, by inspection, an x-value for which f(x) = 2. x = (b) Determine (f-1(x))' when x = 2. (F-1(2))'=
-
How does the new nursing shortage impact the nursing shortage? Will it help in solving the issue of nursing shortage or add to it?
-
How do cognitive biases and perceptual distortions influence the resolution of intricate disputes, and what strategies can be implemented to mitigate their impact ?
-
How can the judicious application of mediation and arbitration principles foster harmonious resolutions amidst intricate intergroup conflicts ?
-
"Share a situation (personal or business) where you had to decide on a capital budgeting matter, like buying a house or a car or an appliance. Explain how you evaluated the matter and what...
-
Develop a consumer benefits package for a service business in your community. Be exhaustive and explicit in your package identification. Develop a process map for making chocolate chip cookies....
-
Explain the operation of the dividends received deduction.
-
Why is the bar chart not an adequate planning and scheduling tool?
-
Since the bar chart is ineffective as a planning and scheduling tool, why is it still widely used in the construction industry?
-
For the CPM Calculation Exercise found on the companion website, determine the ES, EF, LS, LF, FF, and TF for each activity. Identify the activities through which the critical path runs. How many...
Study smarter with the SolutionInn App