— Chapter 11 Derivatives as Hedging Instrument in Managing Foreign Currency Exposures Introduction in this chapter, the discussion will focus on the three types of derivative financial instruments for foreign currency: (1) forward contracts, (2) options and (3) futures which ore commonly used fo hedge foreign currency exposures. Swaps will be discussed on the topic of interestrate exposures. Types of Derivatives Derivatives derive their value from another underlying item such as a share price or an interest rate. Typical examples of derivatives are futures and forwards, swap and option contracts. A derivative usually has a notional amount, which is a currency, a number of shares or other units specified in a contract. Derivatives can generally be categorized one of the following two categories: Option. tives (examples ore option contracts, interest rate caps, and z Pe ay eyes Contracts, if has a "one-sided exposure" wherein only one party con be potentially have a favorable outcome for which it pays a premium at inception: the other party can potentially have only an unfavorable Outcome for which it Is paid the premium at inception. Consequentty, only the downside risk on the hedged lem Is counterbalanced. 787800 _— Forward Contracts Hedging an Exposed Liability - No Premium or Discount ("Undesignated Hedgey of Hedge does not require Hedge Accounting) ¢ based on the following information: On October 17, 20x7, Shirley Ireneo Co. purchased from a Thailand firm on i i 15, 20x8. Also inventory costing 10,000 baht. Payment is due on January on October 17, Shirley ireneo Co. entered into a foreign exchange forward to buy Items 1 and 2 ar 10,000 baht on January 15, 20x8. “i tonz = _12/31x7 WS P1.30 P1.42 P1.40 Spot rate (bah! Forward rate ( 1.30 142 1.40 1. The December 31, 20x7 profit and loss statement, foreign exchange gain or loss due to hedged item amounted to: a. P 200 gain c. P1,200 gain b. 1,000 loss d. 1,200 loss 2. The December 31, 20x7 profit and loss statement, foreign exchange gainor loss due to hedging instrument-forward contract: a. 200 gain c. P1,200 gain b. 1,000 loss d. ‘1,200 loss Hedging an Exposed Liability ~ With Premium Added "Undesignated Hedges” or Hedge does not require Hedge Accounting) \ eo A items 3 through 6 are based on the following information: On October 17, 20x7, Aljon Lee, Inc. purchased from a Thaiil inventory a land costing 10,000 baht. Payment is due on January 15, 20x8. ASC eae W Aljon Lee, Inc. entered into a foreign exchange forward to buy 10,000 baht on January 15, 20x8. ; JONTHZ = 281K? —_ AASB P1.30 P1.42 P1.40 1.36 1.43 1.40 3. What amount will Aljon ‘ onecomber 3h art” ones Meta eke cline erect! a. b. a c. P13,600 a. 14300 Spot rate (baht). Forward rate (baht)Derivatives in Hedging Foreign Curr De Rite 801 4, What amount wil, 15, 20x82 “MoM Lee's ait vaue of the forward contract on January 0. PAD b. 700 c. P13,600 d. 14,300 What was the net j - i this feeoere Netimpact on Aljon Lee, Inc.'s income in 20x8 as a result of - Pinon ; ¢. P100 increase in net income g ‘crease in net income d. P200 increase in net income ltems 6 through 8 are based on the following information: | On September 1, 20x7, Ramus Company purchased machine parts from Jacky | 6. What is the fair value of the forward contract on December 31, 20x72 a, P 0 c. P750,000 b, 29,221 d. 779,221 7. The nominal value of the forward contract on December 31, 20x7? G.°. ROB. c. —P750,000 f b. P29,221 dd. P779,221 8. What ers TS enacts, Eons - F . B. ‘29.221 % d. Tio ‘ i sa_ 5s. sl epee Pemeee ce 12. __ Use the following for March P.156/FC, the company buys the for the merchandise. The merchandise has no+ it amount, in pesos, does the company does the merchandise the spot and forward rate forward contract and pays yet been sold at March 15. Wha pay for the merchandise? At what amount, in pesos. rch 15 balance sheet? appear on the company's Mai F + Amount Merchandise Amount Merchandise paid balance: paid balance a. 148,000 —-P148,000 c. P156,000 P150,000 d. P150,000 P156,000 b. P148,000 —P150,000 information on the Philippine peo value of the FC (foreign currency): Forward rate for March 20, Spot rate 20x4 delivery November 30, 20x3 P1.50 P1.49 December 31, 20x3 1.53 1.51 1.55 1.55 March 20, 20x4 On November 30, 20x3, a Philippine company, with a December 31 year- end, enters a forward purchase contract for FC (foreign currencies) 100,000 to be delivered on March 20, 20x4. The forwrd contract does not qualify as a hedge. The company closes the contract at its expiration date. Which statement is true? No gain or loss is reported until the forward is closed on March a. 20. b. Again of P2,000 is reported in 20x4. c. Again of P4,000 is reported in 20x4. d. Again of P6,000 is reported in 20x4. On December I, 20x7, Joseph Company, a Philippine Company, entered into a three-month forward contract to purchase 1,000,000 foreign currencies on March 1, 20x8. The following peso per peso exchange rates applies: Forward Rate _Spot Rate (Mar. 1, 20x8) December 1, 20x7 0,044 December 31, 20x7 P0,040 Eye March 1,208 pO coDerivatives as Hedging Instrumen bs Joseph'sincremental borrowi ‘ ei for wo months at an ouo™ing rate is 12 percent. The present valve f i ANnual interest rate of 12 percent (1 percent per month) is .9803. Which of the f ing is it i ‘ ber 31, 20x7 balance shee ‘ollowing is included in Joseph's Decem| 5. An asset in the amount of P3'921:20, ¢- Asa liability in the amount of Pé,862.10. d. AS liabilty in the amount of P4'901 50. 13, Taste Bits Inc. purchased chocolates from Thailand for 200,000 bahts on December |. 20x7. Payment is due on January 30, 20x8, On December 1, 20x7, the company also entered info a 60-day forward contract to purchase 200,000 bahts. The forward Contract is not designated as a hedge. The rates were as follows: Spot Rate Forward Rate December 1, 20x7 P0.89 P0.90 (60 days) December 31, 20x7 PO.91 P0.93 (30 days) January 30, 20x8 PO.92 The entries on December 31, 20x7, include a: a. Credit to Foreign Currency Payable to Exchange Broker, P4,000, b. Debit to Foreign Currency Receivable from Exchange Broker,P6,000. c. Debit to Foreign Currency Receivable from Exchange Broker, P186,000. d. Debit to Foreign Currency Transaction Gain, P4,000. 14. Using the same information in No. 13, the entries on January 30, 20x8, include a: a. Debit to Pesos Payable to Exchange Broker, P180,000, b. Credit to Cash, P184,000. ¢. Credit to Premium on Forward Contract, P4,000. d. Credit fo Foreign Currency Receivable from Exchange Broker, P180,000. 15. Using the same information in No. 13, the entries on January 30, 20x8, include rs a. Credit to Foreign Currency Units (Bahts), P184,000. . Credit 180,000. a De i ‘ ee Currency Transaction Loss, P4,000. d. Bae to Pesos Payable to xchange Broker, P184,000.Chapter ty in No. 13, the entries on January 0, 20%8, include 04 16. Using the same information i - Exchange Broker. P184,000. Transaction Gain, P4,000. Receivable from Exchange Broker, Debit to Pesos Payable to Credit to Foreign Currency Credit to Foreign Currency P'180,000. d. Debit to Foreign Currency Units (Bahts), P184,000. ooo With Present Value: Hedging an Exposed Liability Items 17 through 22 are based on the following information: Stark, inc. placed an order for inventory costing 500,000 foreign currency (FC) with a foreign vendor on April 15 when the spot rate was 1 FC = P0.683. Stark feceived the goods on May I when the spot rate was 1 FC = P0.687. Also on May 1. Stark entered into a 90-day forward contract to purchase 500,000 FC at a focward rate of 1 FC = P0.693. Payment was made to the foreign vendor on August I when the spot rate was | FC = P0.696. Stark has a June 30 year-end. In that date, the spot rate was | FC = P0.691, and the forward rate on the contract was ] FC = P0.695. Changes in the current value of the forward contract are measured os the present value of the changes in the forward rates over time, The relevant discount rate is 6%. 17. The foreign exchange gain or loss on hedging instrument (forward contract} on June 30 amounted to: a. P2,000 Cc. PI9S b. 1,000 d. Zero 18. The nominal value of the forward contract on June 30 : eee - lune 30 amounted to: b. P1,000 d. Zero. 19. The fair value of the forward contract on June 30 amounted to: a. P2,000 ce Rog5 b. P1000 d. Zero. 20. The net income effect on June 30 amounted to: & Laan c. P1005 . id. F995, 21. The rr it ai a to Vasu pon due to hedging instrument (forward contract) Se S P1.so0 :” Derivatives as Hedging Instrument in Managing Foreign Currency Exposures 805 2.60 FC. On D forwordrate wares She the spot rate was P1 = 2.90 FC and the 30-day a fair value hedge. the’ FC. Assume an annual interest rate of 12% and ‘Ge: The present value for one month at 12% is 9901. In the joi Journal entry to record the establishment of a forward exchange contract, at wi recorded on Decenee oun" should the Forward Contract account be Qa. P71,428,57 b. —P76,923.08 Cc. P5,549.51 d. PO, since there i is this date. 1S No cost, there is no value for the contract at Hedging an Exposed Asset -"Undesignated Hedges” or Hedge does not require Hedge Accounting Items 23 through 25 are based on the following information: On April 4, 20x7, Conrado Uberita Beauty Products delivered to a Pakistan firm inventory it sold for 100,000 rupees. Payment is due to be received on August 2, 20x7. The company’s fiscal year ends June 30. Also on April 4, Conrado Uberita Beauty Products entered into a foreign exchange forward to sell 100,000 rupees on August 2, 20x7. ALAIXT. 6/30/x7_ 8/2/x7 P.80 P.84 P.82 Spot rate (rupee) .... Re ie a7 83 82 Forward rate (rupee) 23, What was the net impact on Conrado Uberita's income in 20x7 as a result i ree c. 2,000 decrease b. P2,000increase dd. P3,000increase e forward contract on June 30, 20x7% . 24, The om va a the pare 0. b. P4000 d. P3000 25. The fair value of the forward contract my Au | ed 20172 ein d. 83,000 b. 5,000ys , Chapter 1} On June 1, CamCo received a contract 10 sell inventory for oe Yers tr sale would take place in 90 days. comCo immed ty ak 0- day forward contract to sell the yen a5 S007" é they 0 Beet spol = the 70-day = rate on June 1 was P] = 240 yens and JOTWOrD ote ee yens. At what amount would CamCo record Se c. P2,110 b. F083 d. P2532 i foreign customer NC Corp. (a Philippine-based company) sold parts toa 3 a een 1 OOM, with payment of 10 million foreign currencies tobe eeived on March 31, 20x8. The following exchange rates apply: Forward rate _Dates_ Spot Rate for 3/31/20%8} December 1, 20x7 P.0035 P.0034 (4 months} December 31, 20x7 0033 0032 (3 months) 0038 N/A March 31, 20x8 MNC's incremental borrowing rate is 12 percent. The present value factor for three months at an annual rate of interest of 12 percent (1 percent per month) is 0.9706. Assuming that MNC entered into no forward contract, how much foreign exchange gain or loss should it report on its 20x7 income statement with regard to this transaction? a. 5,000 gain c. 2,000 loss b. P3,000gain ~ d. —P1,000 loss * Using the same information in No. 25 and assuming that MNC entered into a forward contract to sell 10 million foreign currencies on December 1, 20x7, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 20x7 resulting from a fluctuation in the value of the foreign currencies? a. No impact on net income. b. —P58.80 decrease in net income. c. — P2,000 decrease in net income. d. P1,941.20 increase in net income. - On July 1, 20x7, Cahoon Company sold some limited edition art prints to Sitake Company for ¥47,850,000 to be pai 850, lid + he peur ercrenae rate on July 1, SE Me Oe uted fren Bis mar cantatas SO pe eee % ge bank t Pesos to be received. According to the tents of thocontrach sares0 000arives as Hedging f ° ent erenene Mag FrignCureny gens ___—_—_—=BOT is worth less th Cash. Likewise, Taree bank will pay cahoon the difference in pay the bank the differance’ worth more than P435,000, Cahoon mus September 30 is ¥105=P} wn : Cash, Assuming the exchange rate na from, the bank (rounded tothe newooh Ht alata oe B Heels Payment Cc, P20,714 payment " celpt d. 20714 receipt 30. On November 1, 20x7 Cahoon Company sold some limited edition art prints to Sitake Company for $47,850,000 10 be paid on January 1, 20x8. The current exchange rate on November |, 20x7, was ¥110=P1, so the total payment at the curent exchange rate would be equal to P435,000. Cahoon entered into a forward contract with a large bank to guarantee the number of pesos to be received. According to the terms of the contract, if ¥47,850,000 is worth less than P435,000, the bank will pay Cahoon the difference in cash. Likewise, if ¥47,850,000 is worth more than P435,000, Cahoon must pay the bank the difference in cash. Assuming the exchange fate on December 31, 20x7 is ¥115=P1, what amount will Cahoon disclose as the fair valve of the forward contract on December 31, 20x7 (answers rounded to the nearest peso)? a. P 0 c. P 20,714 b. 18,913 d. 416,087 Hedging an Unrecognized Foreign Currency Firm Purchase Commitment Hedge Accounting Applies Items 31 through 40 are based on the following information: ‘Asser Tamayo, Inc. entered into a forward contract to buy 1,000,000 yens he 31 me for Ps. On March 31, 20x8, the custom-built passenger van. re pateares, 10/2, I23In7? 3/318 pad : P56 P57 pena a a Accounted for as Fair Value Hedge. statement, net foreign exchange a. ‘The December 31. 20%7 profit ane loss Tere c. Tero since hedge a Moocoutngs808 32. 35. 36. . What is the fair value of th oes __Chapter 1) The Firm Commitment account balance as shown in the December 3}, ted to: Nes SOND cel ¢. P80,000 labilly Bb. 60,000 liability d. None, since it is a fair ; value hedge e forward contract on December 31, 20x7? P50,000 receivable c. _ P60,000 receivable 5. 50000 payable d. 60,000 payable What is the fair value of the forward contract on March 31, 20x8? a. P50,000 receivable c. P40,000 receivable fb. 50,000 payable d. 40,000 payable The Firm Commitment account balance on March 31, 20x8 amounted to: a. P10,000 asset cc. P40,000 asset b. 50,000 liability d. 40,000 liability The value of the equipment on March 31, 20x8 amounted to: a. —P500,000 c. P560,000 b, 530,000 d. 570,000 Accounted for as Cash Flow Hedge 37. The December 31, 20x7 profit and loss statement, foreign exchange gain or 38, 39. 40. loss on hedged item/commitment amounted to: a. — P50,000 loss ¢. 60,000 loss b. 50,000 gain d. Not applicable, since it is a cash flow hedge The December 31, 20x7 foreign exchange gain or loss on the hedging instrument (forward contract) amounted to: a. 50,000 gain, other comprehensive income b. P50,000 gain, current earings C. 60,000 loss, other comprehenstive income d. —P60,000 gain, currerit eamiongs The eo Bicommiinent Gecount balance amounted on March 31, 20x8 Q. P10,000 asset ©. P40,000 liabil 24 .P40,000 liability b. -$0,000 liability d. None, since itis a cash flow hedge | The value of the equisment on March 31, 20x8 | has elected to and axis! he cost ofnoninancilllateerto b. P530,000 © P560,000 oe d. _ P570,000Derivatives as Hedging Derivation A —eCeng Distr Instruments “ments in Managing Foreign Currency Exposures 809 tems 41 and 42 are based on the following information: tober 1, 20; OD baht. Delve company Ordered some equipment from a supplier for October | Payment is to occur on November 30, 2017. The spot mptesion October | Gnd November 30 are PLS nd Piao 4). Ifthe company does not hed i equipment recorded on iro ooe the commitment, at what amount is the Ihe books on November 30, 20x72 a. — P300,000 c. — P200,000 b. 260,000 d. 0 42. ifthe company acquires on October 1, 20x7 a forward contract to hedge any unfavorable changes in fair value of the equipment, at what amount is the equipment recorded on the books on November 30, 20x7? The October 1, 20x7 forward rate for November 30 settlement is P1.35. a. — P300,000 c. — P260,000 b. 270,000 d. 200,000 Items 43 through 50 are based on the following information: Precious Enterprises sells apples to fod processors in the Far East Asia. On July 31, it enters into an agreement (commitment) to sell apples to a foreign company for 50,000,000 FC (foreign currencies). The apples will be delivered October 15 with payment due on November 15. The spot and November 15 forward exchange rates on July 31 are 1 FC = P.0085 and 1 FC = P.0092, respectively. Washington prepares quarterly financial statements with a December 31 year- end. The relevant exchange rates and forward contract fair values are as follows: Nov. 15 Forward Contract Date. Spot Rate Forward Rate Fair Value Sept. 30 P.0084 P.0090, P 10,000 Oct. 15 P.0088, P.0087 P25,000 Nov. 15 P.0086 P.0076 P30,000 43. Whatis the value recognizedin the financial accounting records on July 31 tract? FE Ne coin c. P30,000 b, 430,000 ok 44, What is the value of the forward contract at Soret 302 a. P10,000 § P3000 b. P15,000 s at September 30? 45. What is the Ba ‘on the forward gontoaians pI ee P30,000 b. PIS, aa ata i staternent at Setember 3p; 46, What is the net gain or loss on the naerne a ie 8. Ps000 3. 30,000 47. What is the value of the forward contract at ae 152 a. 10,000 " b. P15,000 d, P30,000 48, What is the gain or loss on the forward contract at October 15? "a, P10,000 c. P25,000 b, —P15,000 d. —P30,000 49. What is the net gain or loss on the income statement at October 152 Bi eB 540 c. P15,000 b. P5,000 d. 25,000 50. What is the net gain or loss on the income statement at October 15% a. P 25,000 cc. P460,000 b. 440,000 d. P465,000 With Present Value: Hedging a Firm Purchase Commitment items 51 through 57 are based on the following information: year ends February 28), San Jose, Inc. decides to hedge i exposure enters into a forward contract to exchange eae 2 (000,000 on April 30, 20x7 (at a forward rate of FC 1.429:P1 ). The forward contract is designated Qs a hedge of the firm commitment to purchase the watches on March 31, 20x7 and to settle the balance owing on April 30, 20x7. Effectiveness will be assessed based on the forward rate, The relevant discount rate is 6%, The following table summarizes the key data: Spot rate Forward rate of con tract expiring 4/30/20%7 Date FC per P ee Pe Cc Pe er Peso F ber Peso V/N/20x7 1 2/1/20x7 ied 2/28/2047 i 1.429 > 3/31/20%7 VAD ale 4130127 540 1.400 1,360Derivatives as Hedging Instruments in ny rumen raging Foreign Currency Exposures anonaih 51. What was the net im statement as a resuit ors ys Jose Inc.'s February 28, 20x7 income ©. P97,860increase MY Valve hedges b. P34,169 decrease & PE.a73decrecse ._ What is the fair vai 7 52. \ a Ue Of the firm commitment account on February 28, Q. P34,619 liability b. P34,273 lability Se ee d. P37,860 asset 53, What was the net impact on san Jose Inc.'s March 31, 20x7 income statement as a result of this fair value hedge? a PO : C. P37,844 increase b. -P34,273 increase gd. P72,117 decrease 54, What is the fair value of the forw ‘ard contract on March 31, 20x72 Qa. = P34,619 Cc. P37,860 Bi, P97 844 d. P72,117 55. What is the value of inventory on March 31, 20x72 a. P3,676,471 Cc. P3,546,099 b. P3,571,429 d. P3,473,982 56. What is the carrying amount of accounts payable on April 30, 20x72 a. P3,676,471 Cc. P3,546,099 b. 3,571,429 d. P3,473,982 57. What is the fair value of the forward contract on March 31, 20x7? a. PI77,521 c Rat b. P130,372 d. P 34,2; %. ippit ny issues a purchase order for merchndise to a foreign pee teen aes total price is FC (foreign currencies) 1,200,000, and the current spot rate is P1/FC. Suppose the company enters a forward Contract when the purchase orders issued, at arate of PO.95/FC, for delivery, when the merchandise is received. If the spot rate rises to P1.05 when the Merchandise is received and paid for, at what valve will the merchandise be reported on the company's books? Lay site aes d. P1,260,000 b. PII.$2 oF > Steve zed Foreign Currency Firm Sales Commitment ~ Hedge Hedging an Unrecogni aie “ e Hedge) Accounting Applies (Fair Valu gh 63 are based on the follo lable sales order f mark, Inc. obtained a noncance ia ftatue of her beloved Ngina. The contrac} ustom-made } ht, On October 12, 20x7 Mark entered into a foreign Items 59 throu: wing information: On October 12, 20x7, a Thailand firm for. ac i 100,000 ba’ eras forward to sell 100,000 baht in 100 days at the forward rate of oactotpe statue was delivered on December 11, 20x7 and collection on 20, 208. mo rosian7 _12/1Nx? 12/3187 12008 spot rate (baht) wun P320 P3.00 P309 ~—«P297 315 298 3.08 297 Forward rate (baht) .. 59. What was the net impact on Mark, Inc.'s December | 1, 20x7 income asa result of this fair value hedge? a. P -0- b. P17,000decrease c. P17,000increase d. P20,000 decrease 60. What are the reportable sales in the income statement in 20x7 assuming that the firm commitment account be closed to sales account? a. — P300,000 c. P309,000 b. — P308,000 d. 317,000 61. OnDecember31, 20x7, the foreign exchange gain or loss on the accounts receivable (AR) and firm commitment (FC) amounted to: AR Fe AR FC a. P9,000loss =P 0 c. P9,000 gain P9,000 gain b. P9,000gain P 0 Ab ial 0 P9,000 loss 62, On December 31, 20x7, the foreign exchange gain or loss on the hedging instrument (forward contract) amounted to: a. P7,000 gain c. P 9,000 gait b. P7,000 loss j a. P11;000I0ss 63. What i is fo me ee a es net impact on January 31, 20x8 income as a result of this far a. PO c. P1,000 ir b. P2,000 net gain d. P1,000 sss heseDerivatives os Hedging Instruments in Managing Foreign Curreney Exposures $13 64. On March 1, 20x7, We: foreign customer at a date of April 30, 20x7. 0; is PO.115, Westfields C sell 500,000 foreign cu It designates the f commitment to re stfields Corp. received an order for parts from a Price Of 500,000 foreign currencies with a delivery N March 1, whe the peso-foreign currency spot rate ‘O'P. entered into a two-month forward contract to reNcies at a forward rate of PO.12 per foreign currency. ‘ward contract as a fair value hedge of the firm i ‘ceive foreign currencies, and the fair value of the firm commitment is measured by referring to changes in the peso forward rate. Westfields delivers the parts and receives payment on April 30, 20x7, when the foreign currency rate is P0.118. On March 31, 20x7, the foreign currency spot rate is PO.123, and the forward contract has a fair value of P1,250. What is the net impact on Westfields net income for the quarter ended March 31, 20x7, as a result of the forward contract hedge of a firm commitment? a. P -O- b. _P1,250 increase in net income c. P1,500 decrease in net income d. —P1,500 increase in net income 65. Using the same information in No. 64, what is the net impact on Westfields net income for the quarter ended June 30, 20x7, as a result of the forward contract hedge of a firm commitment? a PO b. —P59,000 increase in net income c. P60,000 increase in net income d. 61,500 increase in net income 66. Using the same information In No. 64, whatis the net increase or decrease in cash flow from having entered into this forward contract hedge? esses b. P1,000 increase in cash flow c. P1,500 decrease In cash flow d. 2,500 increase in cash flow Hedging a Forecasted Transaction - Hedge Accounting Applies ltems 67 through 69 are based on the following Information: On |, 20x7, a Philippine firm, Cris Espeniilia, inc. estimates that at least SOO n GN GR will be purchased from a company in Taiwan during ‘of 20x8 for 500,000 Nt dollars. The transaction is probable, andit is to be denominated in Ntdollar. Sales of the inventory are expected to occurin the six months following the purchase.si4 ay purchase 500,000 Nt dollars on The company enters into o forward contract fo Sonvary 31, 2x8 for P1.01 Spotrotes ond foward rates at the January 31, 20xB, settlement were OS follows (pesos per Nt dollar) Forward Rate for spotrate § _131K8 December |, 20x7 eeeaneereo P1.03 P10} December 31 , 20x 1.00 9 January 31, 208 .....--.- = 98 47. The December 31. 20x7. foreign exchange loss on hedging instrument (forward contract) amounted to: 2. P30,000, other comprehensive income b. 30,000, current earings c. 10,000, current eamings d. 10,000, other comprehensive income 48. On Janvary 31, 20:8, foreign exchange gain or loss on hedging instrument fforword controct} amounted to: |. P15,000 debit, other comprehensive income P10,000 debit, other comprehensive income P 5,000 debit, other comprehensive income P'15,000 credit, current eamings ange 69. Suppose that in February, the inventory sold for P600,000, what would be the gross profit assuming any adjustments {if ilerentici wil be thr Cost of Comidecat at ae . P110000 c. P95,000 b. 105000 a. 90,000 ‘With Present Valve: Hedging a Forecasted/ Anticipated Sales tems 70 through 73 are based on the ‘San Antonio, inc. and itsivatives as Hedging Instr Deriva se Miruments in Managing Foreign Gruss 815 the following table summarizes thy le key data: Pot rate ’ Date -atindicated date eos ne ly for ——S130/20x7__ 1/1/20x7 PLC 135 3/31/20x7 PLSFC 149 6/30/20x7 PLEFC 144 PI: FC 144 70. What was the net impact on san Antonio, Inc.'s March 31, 20x7 income as arresult of this cash flow hedge? a PO . ir . P1339 b. P1,339 loss a Piao 71. Whatis the fair value of the forward contract on March 31, 20x72 a. P1,339 Cc. P3518 b. P1359 d. P3571 72. What is the foreign exchange gain or loss due to hedging instrument on June 30, 20x72 a. P1,340, current earnings Cc. P2,679, current earnings b. P1,340, OCI d. P2,679, OCI 73. What is the reportable sales amount on June 30, 20x7 assuming that any exchange differential will be thru the Sales account. a. P96,750 c. —P95,070 b. P96,429 d. P93,750 tems 74 to 78 are based on the following information on the Philippine value of the FC (foreign currency): Forward rate for April 30, Spot rate 20x7 delive: October 30, 20x6 PIAS P1.50 December 31, 20x6 1.48 : 52 April 30, 20x7 1.46 46 x6, a company enters a forward contract to sell FC man on Apt 30,2087 The company’s accounting year ends December 31, 1, + hedges an outstanding FC 100,000 account | Re roc ean og 30. What is the net effect on income in 20x6 and | 20x72 20x6 207 2086 in See c. P3,000.gain 6,000 gain < rer p4000gain d. P2,000 loss P6,000gain at le te