Solu�ons Manual for
Advanced Accoun�ng
th
5 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
, Part 2
CHAPTER 9
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1. b
$900,000 = $1,000,000 – ($1,390,000 – $1,290,000)
2. d
$90,000 = $1,400,000 – $1,310,000; asset because prices declined on a short position.
3. a
($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
4. c
Sales revenue $1,195,000
Cost of sales $1,000,000 – ($1,390,000 - $1,200,000) 810,000
Gross margin $ 385,000
5. d
The gain on the futures is reported in other comprehensive income.
6. c
Inventory is reported at cost, $3.88 per bushel.
7. a
The hedge gain of $3,000 = ($3.88 - $3.85) x 100,000 is reclassified from AOCI to
income, as a reduction in cost of goods sold. $388,000 - $3,000 = $385,000.
8. d
If the market price falls, the option locks in a higher selling price and is more valuable.
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,9. c
$10,000 - $2,000 = $8,000
10. 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.
11. c
$400 credit to OCI for the change in time value, plus $400 credit to OCI for amortization
of time value to income.
12. a
$2,400 increase in option value less $2,000 decrease in merchandise value.
13. b
$10,000 - $2,000 - $2,500 = $5,500.
14. 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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, 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.
15. d
$6,000 = (3.0% – 1.8%)/2 x $1,000,000 net cash received to settle the swap.
16. 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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