3. [Hedging commodity price risk] PepsiCo [PEP] reports that it is subject to market risk with respect to the cost of com- modities because our ability to recover increased costs through higher prices may be limited by the competitive environment in which we operate. We manage this sk primarily through the use of fixed-price purchase orders. pricing agreements. geographic diversity and derivative instruments. Our use of derivative instruments is not significant to our commodity purchases PEP also reports that it has commitments for the purchase of goods and services used in the production of our products approximating $2 billion with terms up to 5 years.

a. Fxplain how PepsiCo would report the derivative contracts (and the hedged items) used to hedge commodity price risk in the company's financial statements at the time they are en- tered into and when the underlying commodities are pur- chased.

b. Explain how PepsiCo would report the commitments for the purchase of goods and services in the company's financial statements at the time they are entered into and when the goods and services are paid for.

c. State the information that you would need to evaluate the po- tential gains and losses from the firm commitments and pur- chase contracts.