Question: Problem 10-2 (LO 3, 6) Hedge with forward contract a commitment and subsequent transaction. Kaiser Exporters buys used medical equipment and sells it to various

Problem 10-2 (LO 3, 6) Hedge with forward contract a commitment and subsequent transaction. Kaiser Exporters buys used medical equipment and sells it to various foreign health care institutions. On June 15, the company committed to sell medical equipment to a foreign hospital for 800,000 FC. The equipment, with a cost of $325,000, was shipped to the customer on August 15 with terms FOB shipping point and payment due on October 15. At the time of the commitment, Kaiser acquired a forward contract to sell 800,000 FC in 120 days. Selected spot and forward rates are as follows:

June 15

Spotrate ........................... $0.500

Forwardrate ........................ 0.510

June 30

Spot -$0.485

Forward -0.490

August 15

Spot - $0.480

Forward - 0.475

September 30

Spot -$0.470

Forward -0.468

The relevant discount rate is 6% and changes in the value of the firm commitment are mea- sured as changes in the forward rate over time. Assume that the hedge is accounted for as a fair value hedge and that the time value of the hedge is included in the assessment of effectiveness.

Assuming that financial statements are prepared for the second and third quarters, identify all relevant income statement and balance sheet accounts for the above transactions and deter- mine the appropriate quarterly balances.

The attached excel spreadsheet is what was given to us to complete for the above Problem and an additional one.I have no idea how to do this or where to start. Everytime I think I may have it, I read something in the text that makes me think that I have no idea what I'm doing and what I have is wrong so I keep changing it. The only "help I received from the professor is a copy of answers for Exercises which were available to us anyway. Please help! Thanks!

Problem 10-2 (LO 3, 6) Hedge with forward contract a commitment

Problem 10-2 Balance Sheet Accounts Debit (Credit) Income Statement Accounts Debit (Credit) Use the rows below for your calculations 2nd Quarter 3rd Quarter Problem 10-5 PROBLEM 10-5 For each option March 1 March 31 May 31 Notional amount Strike price Spot rate Value of option... Intrinsic value Time value 1st Quarter 2nd Quarter 3rd Quarter Related to the commitment: Gain (loss) on commitment Gain (loss) on option transferred from OCI to offset gain or loss on commitment Gain (loss) in time value Sales revenue Cost of Sales: Original cost Adjustment for change in value of commitment Additional processing costs Total impact on earnings Related to the purchase of equipment: Gain (loss) in time value Depreciation expense: Total impact on earnings....................................................... Related to the note payable: Total impact on earnings....................................................... Total

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