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On Januay 1. Year 1.XZInc jrchased a call optio contract 0 the stock of ABC Company that givesXZthe right to jrchase 1.000 sharCompany stock at $50 r share anytime in the next &0 days. XZ paid a emium of /share to enter into the option. XZexercised the optFebruay 6. Year 1. when the ABC stock is selling for $60 r share Enter the approiate amounts into the shaded cells.
What i s the underlying?
What i s the notional amount?
What i s the initial net investment?
What is the settlement amount?
Which of the llowing are possible settlement optios when the option is exercised on Februay 6, Year 1 (check all thatay)?
o 5 The option writer delivers 1,000 shares of ABC Company stock toXZand receives $50(0
o 6 The optionwriter can pay $10000 toXZto settle the cotract
o 7 The optionwriter has the optio to jll out of the contract rather than incur loss.
1000 shares
toDD shares
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On August 1. Year 1.XZ entered into a foard cotract in hich it agreed to sell 100.000 Februay 28. Year 2. for $1 4f On Februaythe s pot exchange rate is $1 5f Enter the awopriate am
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In order to hedge etain risks, XI Company entered into the following der"ative ontrats during the urrent y ear AI of the hedging relationshighly etive_ For eah der"ative, determine the hedging designation and the impat on urrent year earnings and/or other omprehensive inDouble-ik on the shaded ells in Colu B and selet the appropriate hedging designation om the list prded. Enter the aopriate amoColu C and Colu D
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Hegg Desgato
Impact O Impact O
EarRgs 0 Fair value hedge1 On Deember 1. the om"ny borrowed 1.000.000 at
Cash flow hedgean annual rate of LIBOR + 3% On that date the ompanyentered into a y-ed reeive-floating inteest rate swap.On Deember 31. the omny hd an unre1lized loss of Foreign urreny15.000 on the swap
2 On Marh , the ompany deided to hedge the risk ( Foreign urrenyhanges in the value ( its intoy using a fuuresontrat On Deember 31 the ompany had an unrealized Foreign urrenygain of $12,000 on the tures ontra t and a $12,050unrealized loss due to a derease in the fair value of theinventoy
3 On July 1. the omny purhased 100% of a Japaneseomny The ntional urreny of the Japaneseomny is the yen_ To hedge against dereases in thevalue of the investment the ompany entered into a foward
reign operation
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On Nmber 1 Year 1XZ Company e3t productio o 10,000 Iaels o oil in Januay oYar 2 0; is currently selling r $85 I" barrel To hedge the deease eore the oil is soldXZ takes a sho position in a ard contract r 10,000 Iarrels o oil at $85 per Iarrel to be settl 0 Januay 31 Year 2 Thesettlement rather than the ctu del o oil The oil is sold on Februay 1 r $1 per Iarrel. XZ classies the hedge as a cash ow hedge o the anticipated(recasted oil sales Relevant rd cotrc! ices are as ollows:
Nmber 1 Year 1Deemr 31 Year 1Januay 31 Year 2
B r
$85.00$79.00$1.00
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Haste Waste Inc perates a 4-ac," landfill that news t be ca.nd clsed in Sye.rs 0 Januay 1. Year 6 The ttal ture cst f this estimated t be $710.000 The relevant accretin rate is 6% and the asset ill be depre
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On Januay 1. Vear 1. Johnson (J) Sth (S) and Heny (H) formed a legal Me patnership Initially J contributed $12.000.000. S contribu$18.000.000. and H ctributed $30.000.000 or a [tnership profit and loss sharing ratio 20%. 30%. and 50%. respectively As [t othe [tnership agreement the [tnership will [y H an annual salay $100.000 < verseeing daily business act;ty In addition the [tners ashold receive a 10% guaranteed bonus any [tnership profits pri to distributing an y eamings to the ind;dual [tners The [tnership winterest 2% the [tners capitaalances at each fiscal year end The [tnership generated net profit $4.000.000 during its first year operations
A the beginning Year 2 the [tnership adtted Cunningha (C) as an additial [tner As [t the agreement Cunningham prded acontribution $20.000.000 in retum < a 20% [tnership interest
In the third quater Year 2. S decided to withdraw om the [tnership The [tnership deterned that the air value the [tnerships ass$110.000.000 and the adjusted profit/loss ratios or J S H and C were now 15%. 25%. 40%. and 20%. respectively
Ans
r th qustions blo
insing th orrt dollar amoun in th shadd lls
" fx
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1 What is the total ofit distribution made
to H inYea,
1?
2 Using the bo". method calculate thechange in ctal r paners J S and Hwhen C was admitted as new paner in
oodwill
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28A
;,ectios 456
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