Exam 19: Derivatives, contingencies, business Segments, and Interim Reports

On July 1, 2014, Stagger Company sold some limited edition art prints to Wakaramas Company for ¥38,500,000 to be paid on September 30 of that year. The current exchange rate on July 1, 2014, was ¥110=$1, so the total payment at the current exchange rate would be equal to $350,000. Stagger entered into a forward contract with a large bank to guarantee the number of dollars to be received. According to the terms of the contract, if ¥38,500,000 is worth less than $350,000, the bank will pay Stagger the difference in cash. Likewise, if ¥38,500,000 is worth more than $350,000, Stagger must pay the bank the difference in cash. -Using the information above and assuming the exchange rate on September 30 is ¥105=$1,what amount will Stagger pay to,or receive from,the bank (rounded to the nearest dollar)?

Yakuzi Bakeries specializes in making cakes,cookies,and other pastries out of rice flour which they grind themselves.Yakuzi anticipates purchasing 40,000 pounds of rice in January 2015.On November 1,2014,Yakuzi entered into a futures contract with Rising Sun Growers to purchase 40,000 pounds of rice on January 1,2015,at $0.50 per pound.On December 31,2014,and January 1,2015,the prevailing market price for rice is $0.55 per pound.Yakuzi purchases the rice and settles the futures contract on January 1,2015. Make the necessary entries on Yakuzi's books at (a)November 1,2014 (b)December 31,2014 (c)January 1,2015

A company enters into a futures contract with the intent of hedging an account payable of DM350,000 due on December 31.The contract requires that if the U.S.dollar value of DM350,000 is greater than $175,000 on December 31,the company will be required to pay the difference.Alternatively,if the U.S.dollar value is less than $175,000,the company will receive the difference.Which of the following statements is correct regarding this contract?

On February 1,Rapido Corporation entered into a firm commitment to purchase specialized equipment from the Yamasake Trading Company for ¥65,000,000 on April 1.Rapido would like to reduce the exchange rate risk that could increase the cost of the equipment in U.S.dollars by April 1,but Rapido is not sure which direction the exchange rate may move.What type of contract would protect Rapido from an unfavorable movement in the exchange rate while allowing them to benefit from a favorable movement in the exchange rate?

According to FASB ASC Topic 280 (Segment Reporting)how do firms identify reportable segments?

Which of the following measures is NOT used to determine whether a subunit of a business is a reportable segment?

On March 1,Suki Corporation entered into a firm commitment to purchase specialized equipment from the Sashimi Trading Company for ¥80,000,000 on June 1.The exchange rate on March 1 is ¥100 = $1.To reduce the exchange rate risk that could increase the cost of the equipment in U.S.dollars,Suki pays $20,000 for a call option contract.This contract gives Suki the option to purchase ¥80,000,000 at an exchange rate of ¥100 = $1 on June 1.On June 1,the exchange rate is ¥105 = $1.How much did Suki save by purchasing the call option (answers rounded to the nearest dollar)?

Stellar Corporation sells five different types of products.The company is divided for internal reporting purposes into five different divisions based on these five different product lines.The company should prepare the note disclosure for disaggregated information based upon the

The following segments were identified for an enterprise: Which of the four segments is a reportable segment?

On January 17,2014,an explosion occurred at an Boondocks Fireworks plant causing extensive property damage to area buildings.Although no claims had yet been asserted against Boondocks by March 10,2014,Boondocks' management and counsel concluded that it is reasonably possible Boondocks will be responsible for damages and that $2,500,000 would be a reasonable estimate of its liability.Boondocks' $10,000,000 comprehensive public liability policy has a $500,000 deductible clause.In Boondocks' December 31,2014,financial statements,which were issued on March 25,2015,how should this item be reported?

An obligation that is contingent on the occurrence of a future event should be reported in the balance sheet as a liability if the

On January 1, 2014, Panther Company received a two-year $600,000 loan. The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2014, was 10 percent. Aegean company also has a two-year $600,000 loan, but Aegean's loan carries a fixed interest rate of 10 percent. -Panther Company does not want to bear the risk that interest rates may increase in year two of the loan.Aegean Company believes that rates may decrease and they would prefer to have variable debt.So the two companies enter into an interest rate swap agreement whereby Aegean agrees to make Panther's interest payment in 2015 and Panther likewise agrees to make Aegean's interest payment in 2015.The two companies agree to make settlement payments,for the difference only,on December 31,2015.If the interest rate on December 31,2014 is 12 percent,what amount will Panther report as the fair value of the interest rate swap at December 31,2014 (answers rounded to the nearest dollar)?

Sanford,Inc.,enters into a call option contract with Sons Investment Co.on January 2,2014.This contract gives Sanford the option to purchase 1,000 shares of MAX stock at $100 per share.The option expires on April 30,2014.MAX shares are trading at $100 per share on January 2,2014,at which time Sanford pays $400 for the call option.The $400 paid by Sanford,Inc.,to Sons Investment is referred to as the

On June 18,Burger Corporation entered into a firm commitment to purchase specialized equipment from the Hyabuza Trading Company for ¥80,000,000 on August 20.The exchange rate on June 18 is ¥100 = $1.To reduce the exchange rate risk that could increase the cost of the equipment in U.S.dollars,Burger pays $12,000 for a call option contract.This contract gives Burger the option to purchase ¥80,000,000 at an exchange rate of ¥100 = $1 on August 20.On August 20,the exchange rate is ¥93 = $1.How much did Burger save by purchasing the call option (answers rounded to the nearest dollar)?

Blind Faith Company reported the following data with regard to its first quarter of operations: The expected annual income tax rate is 40 percent.Blind Faith should report net income on the first quarter interim financial statements of

In considering interim financial reporting,how does FASB ASC Topic 270 conclude that such reporting should be viewed?

An agreement between two parties to exchange a specified amount of a commodity,security,or foreign currency at a specified date in the future with the price or exchange rate being set now is referred to as a(n)

Ondular Technologies is involved in cancer research.Ondular is involved in a number of lawsuits related to their operations.For each case,indicate the disclosure that should be provided by Ondular Technologies in the annual financial statement. (1)One of their drugs,Superoxide,resulted in dangerous side effects of which Ondular was unaware.As a result,a class action lawsuit has been filed against Ondular.Ondular's attorneys feel it is probable that the company will lose the suit,and the amount can be reasonably estimated. (2)An employee of Ondular is suing the company alleging that his seizures are a result of the working environment at Ondular.Ondular's attorneys feel the suit is without merit. (3)A competitor,Straight Drugs,has filed suit against Ondular alleging patent infringement.Ondular's attorneys are unsure as to the outcome of the suit.

Which of the following is the most likely candidate for a contingent liability that must be accrued?

A company that receives 10 percent or more of its revenue from sales to a single customer must disclose the