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Solu�ons Manual for Advanced Accoun�ng 5 th Edi�on By Susan Hamlen (All Chapters 100% Original Verified, A+ Grade) Part 2: Ch 9-16: Page 2-441 Part 1: Ch 1-8: Page 442-877 1 / 4
Stuvia.com - The Marketplace to Buy and Sell your Study Material 2023 Solutions Manual, Chapter 9 9-1
CHAPTER 9
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
- b
$900,000 = $1,000,000 – ($1,390,000 – $1,290,000)
- d
- a
- cSales revenue$1,195,000
- d The gain on the futures is reported in other comprehensive income.
- c Inventory is reported at cost, $3.88 per bushel.
- a The hedge gain of $3,000 = ($3.88 - $3.85) x 100,000 is reclassified from AOCI to
- d
$90,000 = $1,400,000 – $1,310,000; asset because prices declined on a short position.
($1,390,000 - $1,290,000) = $100,000 loss on inventory ($1,400,000 - $1,310,000) = 90,000 gain on futures Net effect on 2023 income $10,000 loss
Cost of sales $1,000,000 – ($1,390,000 - $1,200,000) 810,000 Gross margin$ 385,000
income, as a reduction in cost of goods sold. $388,000 - $3,000 = $385,000.
If the market price falls, the option locks in a higher selling price and is more valuable. Stuvia.com - The Marketplace to Buy and Sell your Study Material
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Stuvia.com - The Marketplace to Buy and Sell your Study Material3 9-2 Advanced Accounting, 5 th Edition
- c
$10,000 - $2,000 = $8,000
- b
Total option value is now $3,000, an increase of $2,400 (= $3,000 - $600). Intrinsic value increases from zero to $2,000 (= $15,000 - $13,000). Therefore, time value increases $400.
- c
$400 credit to OCI for the change in time value, plus $400 credit to OCI for amortization of time value to income.
- a
$2,400 increase in option value less $2,000 decrease in merchandise value.
- b
$10,000 - $2,000 - $2,500 = $5,500.
- d
The only effect is the amortization of $200 (= $600/3) since the effect of the intrinsic value change is neutralized.
Entries for questions 9-14 are provided below.
November 1, 2023 Investment in options 600 Cash 600
December 31, 2023
Cost of goods sold 2,000 Merchandise 2,000 Same entry regardless of time value alternative used.
If time value is recognized directly in income:
Investment in options 2,400 Cost of goods sold 2,400
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Stuvia.com - The Marketplace to Buy and Sell your Study Material3 Solutions Manual, Chapter 9 9-3
If time value is systematically amortized:
Investment in options 2,400 Cost of goods sold 2,000 Gain on time value of options (OCI) 400
Cost of goods sold 400 Reclassification of time value (OCI) 400
January 31, 2024 Cost of goods sold 2,500 Merchandise 2,500 Same entry regardless of time value alternative chosen.
If time value is recognized directly in income:
Investment in options 1,500 Cost of goods sold 1,500
If time value is systematically amortized:
Investment in options 1,500 Loss on time value of options (OCI) 1,000 Cost of goods sold 2,500
Cost of goods sold 200 Reclassification of time value (OCI) 200
Cash 4,500 Investment in options 4,500 Same entry regardless of time value alternative chosen.
- d
$6,000 = (3.0% – 1.8%)/2 x $1,000,000 net cash received to settle the swap.
- b
A receive fixed/pay variable swap is a fair value hedge of the fixed rate debt. Both the debt and the swap are marked to market, with value changes reported in income.Because interest rates declined, the fair value of the debt, measured as the present value of the future principal and interest payments, increased, creating a loss.
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