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Hedge Accounting – Journal Questions

Journal Questions

For the following scenarios, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet.

Put Option as a Hedge—Trade Currency SGD

Konark Fund had the following trades of Lever shares in the Options market through Silver Man brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract.
Date             Product    StrikePrice(SGD)        Expiry       Quantity    Rate(SGD)    B/S    Brokerage(SGD)
23-Jan-X1     Put               50                         16-Mar-X1   10,000        5.00             B            540
23-Feb-X1    Put               50                         16-Mar-X1     8,000        4.00             B            440
10-Mar-X1    Put               50                        16-Mar-X1   12,000        3.00             S            720

Liquidation Method
   FIFO

Market Rate of Underlying Stock, Lever
   January 31: S$48.00
   February 28: S$ 43.00
   March 16: S$55

Market Rate of Lever Put Option with Strike Price $50, Expiry March 16
   January 31: S$2
   February 28: S$6.00

FX Rate SGD/US$
   January 23: 1.5210
   January 31: 1:1.532
   February 23: 1.4956
   February 28: 1.500
   March 10: 1.5148
   March 16: 1.5463

Functional Currency
   US$

Put Option as a Hedge—Functional Currency US$

Orange Fund had the following trades of Tomco shares in the options market through SMK brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract.
Date             Product        StrikePrice            Expiry          Quantity     Rate       B/S          Brokerage

20-Jan-X1       Put               $50                16-Mar-X1       10,000     $5.00       B              $450
21-Feb-X1      Put               $50                16-Mar-X1         8,000     $4.00       B              $500
13-Mar-X1      Put               $50                16-Mar-X1       12,000     $3.00       S              $690

Liquidation Method
  FIFO

Market Rate of Underlying Stock, Tomco
  January 31: 48.00
  February 28: 43.00
  March 16: $56

Market Rate of Tomco Put Option with Strike Price $50, Expiry March 16
  January 31: $2
  February 28: $6.00

Functional Currency
  US$

Call Option as a Hedge—Trade Currency AUD

KKR Fund had the following trades in Zenith shares in the options market through Khan brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On January 1 KKR Fund introduced US$100,000 as capital and converted US$50,000 into AUD at a rate of 1.24.
Date             Product      StrikePrice       Expiry           Quantity      Rate (AUD)       B/S   Brokerage (AUD)
21-Jan-X1       Call         AUD 40         15-Mar-X1       12,000           4.00              B           $500
20-Feb-X1      Call         AUD 40         15-Mar-X1        13,000          5.00              B           $600
12-Mar-X1      Call         AUD 40         15-Mar-X1        15,000          4.00              S           $300

Liquidation Method
  FIFO

Market Rate of Underlying Stock, Zenith (AUD)
  January 31: 35.00
  February 28: 40.00
  March 16:45

Market Rate of Zenith Call Option with Strike Price $40, Expiry March 15
  January 31: 3
  February 28: 5.00

FX Rate AUD/US$
  January 21: 1.2178
  January 31: 1.28964
  February 20: 1.26345
  February 28: 1.24789
  March 12: 1.23645
  March 15: 1.27893

Functional Currency
  US$

Call Option as a Hedge—Functional Currency US$

Konrad Fund had the following trades in Home Depot in the Options market through MMT brokers. On January 1 Konrad Fund introduced $100,000 as capital.
Date            Product      StrikePrice      Expiry           Quantity      Rate      B/S        Brokerage
25-Jan-X1      Call             $50          16-Mar-X1      10,000       $5.00      B             $540
22-Feb-X1     Call             $50          16-Mar-X1      16,000       $4.00      B             $620
11-Mar-X1     Call             $50          16-Mar-X1      16,000       $3.00      S             $320

Liquidation Method
  FIFO

Market Rate of Underlying Stock, Home Depot
  January 31: 40.00
  February 28: 55.00
  March 16: $55

Market Rate of Home Depot Call Option with Strike Price $50, Expiry March 16
  January 31: 2
  February 28: 6.00

Functional Currency
  US$

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