Intermediate accounting 1

Basic Derivatives 685 initial margin deposit of P20,000. The quoted prices per unit are as follows: Dec. 1, 20x1 Dec. 31, 20x1 Jan. 31, 20x2 100 98 97 On settlement date, how much cash did Rome Co. receive from or paid to the broker? a. 30,000 receipt c. 50,000 receipt b. 30,000 payment d. 50,000 payment 9. Ma'am Erl Co. acquired the following futures contracts for a specific commodity on Jan. 1, 20x1: Notional Futures price Market price figure - 1/1/x1 - 12/31/x1 5. "Long" futures contract 2,800 200 180 6. "Short" futures contract 1,300 230 220 How much is the net derivative asset (liability) on Dec. 31, 20x1? a. 43,000 b. (43,000) c. 69,000 d. (69,000) 10. Mingming Co. paid a premium of P15,000 for a call option on 10,000 units of a foreign currency at a strike price of P500 per unit. The subsequent market prices were P499 at the reporting date and P498 at exercise date. On expiration date, Mingming Co. recognizes a a. 20,000 gain. c. 10,000 gain. b. 5,000 loss. d. 10,000 loss. 11. On June 18, Edwards Corporation entered into a firm commitment to purchase specialized equipment from the Okazaki Trading Company for V80,000,000 on August 20. The exchange rate on June 18 is V100 = $1. To reduce the exchange rate risk that could increase the cost of the equipment in U.S. dollars, Edwards pays $12,000 for a call option contract. This contract gives Edwards the option to purchase V80,000,000 at an exchange rate of V100 = $1 on August 20. On August 20, the 686 Chapter 13 exchange rate is 193 = $1. How much did Edwards save by purchasing the call option? a. $12,000 b. $48,215 c. $60,215 d. Edwards would have been better off not to have purchased the call option. (Adapted)684 Chapter 13 4. On March 1, 20x1, Banana Co. entered into a forward contract to sell 20,000 units of a commodity at a forward price of P50 per unit. The contract will be settled net on April 30, 20x1. The market prices were P65 per unit on March 31, 20x1 and P40 per unit on April 30, 20x1. What amount of gain (loss) is recognized on April 30, 20x1? a. 500,000 b. (500,000) c. 100,000 d. (100,000) 5. On Nov. 2, 20x1, Sta. Ana Co. entered into a forward contract to sell 20,000 units of a specified commodity at a forward price of P45 per unit. The contract is due on Feb. 2, 20x2. The current prices were P47 on Dec. 31, 20x1 and P44 on Feb. 2, 20x2. What amount of derivative asset (liability) is recognized on Dec. 31, 20x1 and how much is the net cash receipt (payment) on Feb. 2, 20x2? a. 40,000; 20,000 c. (40,000); 20,000 b. 40,000; (20,000) d. (40,000); (20,000) 6. On December 15, 20x1, Scaffolding Co. enters into a 30-day forward contract to sell 1,000,000 yens at the forward rate of P1.20. On December 31, 20x1, the forward rate was P1.25 and by January 15, 20x2, the spot rate moved to P1.27. How much is the total gain (loss) recognized on the forward contract? a. 70,000 b. (70,000) c. 30,000 d. (30,000) 7. Bitter Coffee Co. expects the value of the euro to decrease in the next 30 days. Accordingly, on December 15, 20x1, Bitter enters into a 30-day forward contract to sell 100,000 euros at the forward rate of P60.00. On December 31, 20x1, Bitter reported a derivative liability of P200,000. The forward rate on December 31, 20x1 must have been a. P58.00. b. P47.00. c. P62.00. d. P84.00. 8. Rome Co. enters into a futures contract to sell 10,000 units of a foreign currency for P100 per unit. The broker requires an Basic Derivatives 685 initial margin deposit of P20,000. The quoted prices per unit are as follows: Dec. 1, 20x1 Dec. 31, 20x1 Jan. 31, 20x2 100 98 97 On settlement date, how much cash did Rome Co. receive from or paid to the broker? a. 30,000 receipt c. 50,000 receipt b. 30,000 payment d. 50,000 paymentPROBLEM 4: MULTIPLE CHOICE - COMPUTATIONAL 1. On Jan. 1, 20x1, Lights Co. forecasted the purchase of 1,000 units of a raw material. The expected date of purchase is on April 15, 20x1. Lights Co. expects the prices to fluctuate. Thus, on Jan. 1, 20x1, Lights Co. enters into a forward contract to purchase 1,000 units of the raw material at a forward rate of P600 per unit. If the market price on April 15, 20x1 is more than P600, Lights Co. shall receive the difference from the broker, whereas if the market price is less than P600, Lights Co. shall pay the difference. The forward contract will be settled net on April 15, 20x1. The discount rate is 10%. If the price of the raw material is P550 per unit on Mar. 31, 20x1, how much is the derivative asset (liability) to be recognized in Lights Co.'s first quarter financial statements? a. 50,000 b. (50,000) c. 45,455 d. (45,455) Use the following information for the next two questions: On Nov. 2, 20x1, Binbin Co. enters into a 90-day forward contract with a bank to purchase $100,000 at a set-price of P50 per dollar. The forward rate on Dec. 31, 20x1 is P52, while the spot exchange rate on Jan. 31, 20x2, settlement date, is P49. 2. What amount of derivative asset (liability) is reported in Binbin's Dec. 31, 20x1 statement of financial position? a. 200,000 b. (200,000) c. 100,000 d. (100,000) 3. How much is the gain (loss) recognized on Jan. 31, 20x2? a. 100,000 b. (100,000) c. 300,000 d. (300,000)