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Complete Solution Manual Intermediate Accounting 11th Edition Spiceland, Nelson, Thomas, Winchel Questions & Answers with rationales $16.99   Add to cart
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Complete Solution Manual Intermediate Accounting 11th Edition Spiceland, Nelson, Thomas, Winchel Questions & Answers with rationales

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Intermediate Accounting 11th Edition Spiceland, Nelson, Thomas, Winchel Solution Manual Complete Solution Manual Intermediate Accounting 11th Edition Spiceland, Nelson, Thomas, Winchel Questions & Answers with rationales PDF File All Pages All Chapters Grade A+

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  • June 12, 2023
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  • 2022/2023
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  • Intermediate Accounting

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Question A–1
These instruments “derive” their values or contractually required cash flows from some
other security or index.
Question A–2
The FASB has taken the position that the income effects of the hedge instrument and
the income effects of the item being hedged should be recognized at the same time.
Question A–3
If interest rates change, the change in the debt’s fair value will be less than the change
in the swap’s fair value. The gain or loss on the $500,000 notional difference will not be
offset by a corresponding loss or gain on debt. Any increase or decrease in income
resulting from a hedging arrangement designated as a fair value hedge would be a result of
differences such as this. As long as the derivative instrument is considered “highly
effective” in offsetting the changes in fair value of the debt, then hedge accounting may be
used.
Question A–4
A futures contract is an agreement between a seller and a buyer that calls for the seller
to deliver a certain commodity (such as wheat, silver, or Treasury bond) at a specific
future date, at a predetermined price. Such contracts are actively traded on regulated
futures exchanges. When the contract involves a financial instrument , such as a Treasury
bill, commercial paper, or a CD, the contract is called a financial futures agreement.
Question A–5
An interest rate swap exchanges fixed interest payments for floating rate payments, or
vice versa, without exchanging the underlying notional amount. The interest expense then
reflects the rate(s) to which the interest has been swapped. If the interest rate swap is
designated as a fair value hedge, the interest expense also reflects offsetting gains and
losses on the fair value of the swap and the fair value of the hedged asset or liability.
Solutions Manual, Appendix A A–1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.Appendix A DerivativesQUESTIONS FOR REVIEW OF KEY TOPICS
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Answers to Questions (continued)
Question A–6
All derivatives are reported on the balance sheet as either assets or liabilities at fair (or
market) value. The rationale is that (a) derivatives create either rights or obligations that
meet the FASB’s definition of assets or liabilities and (b) fair value is the most meaningful
measurement.
Question A–7
A gain or loss from a cash flow hedge is deferred as other comprehensive income until
it can be recognized in earnings along with the earnings effect of the item being hedged.
At that time, it will be reported in the income statement in the same line items as the
income or expense from the item that was hedged.
A–2 Intermediate Accounting, 11/e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
2 / 4

Exercise A–1
Indicate (by abbreviation) the type of hedge each activity described below would
represent.
Hedge Type
FVFair value hedge
CFCash flow hedge
FCForeign currency hedge
NWould not qualify as a hedge
Activity
FV 1.An options contract to hedge possible future price changes of inventory.
CF 2.A futures contract to hedge exposure to interest rate changes prior to replacing
bank notes when they mature.
CF 3.An interest rate swap to synthetically convert floating rate debt into fixed rate
debt.
FV 4.An interest rate swap to synthetically convert fixed rate debt into floating rate
debt.
FV 5.A futures contract to hedge possible future price changes of timber covered by a
firm commitment to sell.
CF 6.A futures contract to hedge possible future price changes of a forecasted sale of
aluminum.
FC 7.ExxonMobil’s net investment in offshore drilling operations in Brazil.
CF 8.An interest rate swap to synthetically convert floating rate interest on an
available-for-sale debt investment into fixed rate interest.
N 9.An interest rate swap to synthetically convert fixed rate interest on a held-to-
maturity debt investment into floating rate interest.
FV 10.An interest rate swap to synthetically convert fixed rate interest on an available-
for-sale debt investment into floating rate interest.
Solutions Manual, Appendix A A–3
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
3 / 4

Exercise A–2
Requirement 1
January 1March 31 June 30September 30
Fair value of interest rate swap $0$6,472$11,394$9,565
Fair value of notes payable $200,000$206,472$211,394$209,565
Fixed rate – swap 10% 10%10%10%
Floating rate – swap 10% 8%6%6%
Fixed interest receipts $5,000$5,000$5,000
Floating interest payments (5 ,000 (4 ,000 (3 ,000
Net interest receipts $ 0$1 ,000 $2 ,000
Note: This is a fair value hedge, swapping a fixed interest rate for a variable interest rate.
Thus, if the variable rate is less than the fixed rate, cash will be collected in the net
settlement. If the variable rate is more than the fixed rate, cash will be paid in the
net settlement. In this exercise, the variable rate always is less than the fixed rate
and thus the net settlement is only of cash receipts.
A–4 Intermediate Accounting, 11/e
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.Powered by TCPDF (www.tcpdf.org)
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