Questions 2/1 to 2/4 are based on the following Information: On January 1st, 20x1, Phineas Coffee...

Transcribed Image Text:

Questions 2/1 to 2/4 are based on the following Information: On January 1st, 20x1, Phineas Coffee Company anticipates a need for 100,000 pounds of coffee beans to fulfill fa purchase orders. To ensure freshness, Phineas plans to purchase the coffee beans on September 1st, 20x1. To hedge the risk that the price of coffee beans will increase, Phineas signs a futures contract with a bank, in which Phineas agrees to buy 100,000 lbs. of coffee beans for $1.00/lb. on September 30, 20x1. The prices of coffee beans are as follows: Spot Price for September Delivery $1.00 per lb. • January 1, 20x1 $1.10 per lb. • March 31, 20x1 $0.85 per lb. • June 30, 20x1 $1.30 per lb • Sept. 30, 20x1 On September 30, Phineas purchases 100,000 pounds of coffee beans for $1.30 per lb. On December 31st, the Company fulfills purchase orders for 100,000 lbs. of coffee for $190,000 cash. Q2/1 What is the total net effect of the hedging arrangement on Net Income In Quarter 1 (Jan 1 to March 31)? Q2/2 What is the total net effect of the hedging arrangement on Other Comprehensive Income in Quarter 2 (April 1 to June 30)? Q2/3 What is the total net effect of the hedging arrangement on Comprehensive Income in Quarter 3 (July 1 to Sept. 30)? Q2/4 What is the total net effect of the Dec. 31st sale (and any other related entries from that day) on Net Income? Questions 2/1 to 2/4 are based on the following Information: On January 1st, 20x1, Phineas Coffee Company anticipates a need for 100,000 pounds of coffee beans to fulfill fa purchase orders. To ensure freshness, Phineas plans to purchase the coffee beans on September 1st, 20x1. To hedge the risk that the price of coffee beans will increase, Phineas signs a futures contract with a bank, in which Phineas agrees to buy 100,000 lbs. of coffee beans for $1.00/lb. on September 30, 20x1. The prices of coffee beans are as follows: Spot Price for September Delivery $1.00 per lb. • January 1, 20x1 $1.10 per lb. • March 31, 20x1 $0.85 per lb. • June 30, 20x1 $1.30 per lb • Sept. 30, 20x1 On September 30, Phineas purchases 100,000 pounds of coffee beans for $1.30 per lb. On December 31st, the Company fulfills purchase orders for 100,000 lbs. of coffee for $190,000 cash. Q2/1 What is the total net effect of the hedging arrangement on Net Income In Quarter 1 (Jan 1 to March 31)? Q2/2 What is the total net effect of the hedging arrangement on Other Comprehensive Income in Quarter 2 (April 1 to June 30)? Q2/3 What is the total net effect of the hedging arrangement on Comprehensive Income in Quarter 3 (July 1 to Sept. 30)? Q2/4 What is the total net effect of the Dec. 31st sale (and any other related entries from that day) on Net Income?

Answer rating: 100% (QA)

Q21 Q22 Q23 Amount In Caluclation net effect of hedging arregment on net income for the quarter jan ... View the full answer