What amount of forward loss should parker company recognize

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Reference no: EM132781541

Questions - PLEASE PROVIDE SOLUTION OR EXPLANATION TO ANSWER

Question 1 - On Nov 3, 2020, Parker Company invests a P2,000,000 in a convertible debt instrument issued by SC Company that pays fixed interest of 7% and that can be converted into 10,000 shares in SC Company in five years at Parker's option. Otherwise the debt will pay P2,000,000 at maturity. At the time of acquisition, the conversion option has a fair value of P260,000. On December 31, 2020, the debt instrument has a fair value of P1,750,000 and the conversion option has a determinable fair value of P300,000.

What amount of derivative asset to be reported separately in the statement of financial position assuming the company has a business model with the objective of trading financial assets?

a. None

b. P250,000

c. P260,00

d. P300,000

Question 2 - On October 1, 2020, Parker Company invests P3,000,000 in abound whose interest payments are linked to the price of gold. On October 1, 2020, the derivative contract has a fair value of P150,000. Parker Company has a business model with the objective of trading all financial instruments.

What is the carrying value of the available for sale investment on October 1, 2020?

a. P150,000

b. P2,850,000

c. P3,000,000

d. P3,150,000

Question 3 - On January 2, 2020, Parker Company enters into a forward contract to purchase on January 2, 2022, a specified number of barrels of oil at a fixed price. Parker Company does not pay anything to enter into the forward contract on January 2, 2020. Parker Company does not designate the forward contract as a hedging instrument. At the end of 2020, the fair value of the forward contract has increased to P400,000 and at the end of 2021 its fair value has declined to P350,000.

What amount of forward loss should Parker Company recognize at the end of year 2021?

a. None

b. P50,000

c. P350,000

d. P400,000

Question 4 - On January 2, 2020, Parker Company enters into a forward contract to purchase on January 2, 2022, a specified number of barrels of oil at a fixed price. Parker Company does not pay anything to enter into the forward contract on January 2, 2020. Parker Company does not designate the forward contract as a hedging instrument. At the end of 2020, the fair value of the forward contract has increased to P400,000 and at the end of 2021 its fair value has declined to P350,000.

Assuming Parker Company is speculating that the price of oil will increase and plans to net settle the contract if the price increases, what amount of forward loss should Parker Company recognize at December 31, 2021 statement of comprehensive income?

a. None

b. P50,000

c. P350,000

d. P400,000

Question 5 - On January 31, 2020, Esther Company enters into a contract with San Miguel Corp. to receive the fair value of 2,000 of Esther Company's own outstanding shares as of February 1, 2021 in exchange for a payment of P212,000 in cash or an equivalent of P106 per share on February 1, 2021. The contract will be settled net in cash. At the time of the contract, shares of Esther Company are selling at P100 per share; the present value of the forward contract is zero. On December 31, 2020, shares of Esther Company are selling at P115 and the forward contract has a fair value of P13,800. On February 1, 2021, shares of Esther Company are selling at P108 and the fair value of the forward contract is P4,000.

What amount should Esther Company recognize as forward asset on January 31, 2020?

a. None

b. P4,000

c. P13,800

d. P17,800

Question 6 - On January 31, 2020, Esther Company enters into a contract with San Miguel Corp. to receive the fair value of 2,000 of Esther Company's own outstanding shares as of February 1, 2021 in exchange for a payment of P212,000 in cash or an equivalent of P106 per share on February 1, 2021. The contract will be settled net in cash. At the time of the contract, shares of Esther Company are selling at P100 per share; the present value of the forward contract is zero. On December 31, 2020, shares of Esther Company are selling at P115 and the forward contract has a fair value of P13,800. On February 1, 2021, shares of Esther Company are selling at P108 and the fair value of the forward contract is P4,000.

What amount of gain on forward contract should Esther Company recognize on December 31, 2020?

a. None

b. P4,000

c. P9,800

d. P13,800

Question 7 - On January 31, 2020, Esther Company enters into a contract with San Miguel Corp. to receive the fair value of 2,000 of Esther Company's own outstanding shares as of February 1, 2021 in exchange for a payment of P212,000 in cash or an equivalent of P106 per share on February 1, 2021. The contract will be settled net in cash. At the time of the contract, shares of Esther Company are selling at P100 per share; the present value of the forward contract is zero. On December 31, 2020, shares of Esther Company are selling at P115 and the forward contract has a fair value of P13,800. On February 1, 2021, shares of Esther Company are selling at P108 and the fair value of the forward contract is P4,000.

What amount of gain or loss on forward contract should Esther Company recognize on February 1, 2021?

a. None

b. P4,000

c. P9,800

d. P13,800

Question 8 - Parker Company produces colorful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2020, the entity purchased a call option as a cash flow hedge to buy 50,000 kilos on July 1,2020. The option strike price is P100 per kilo, the entity paid P50,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower that P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2019 and P115 on July 1, 2020.

What is the derivative asset on December 31, 2019?

a. P500,000

b. P450,000

c. P750,000

d. P700,000

Question 9 - Parker Company produces colourful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2020, the entity purchased a call option as a cash flow hedge to buy 50,000 kilos on July 1,2020. The option strike price is P100 per kilo, the entity paid P50,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower that P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2019 and P115 on July 1, 2020.

What is the cash settlement from the speculator on July 1, 2020?

a. P500,000

b. P450,000

c. P250,000

d. P700,000

Question 10 - Parker Company produces colourful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2020, the entity purchased a call option as a cash flow hedge to buy 50,000 kilos on July 1,2020. The option strike price is P100 per kilo, The entity paid P50,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower that P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2019 and P115 on July 1, 2020.

What is the cost of purchases on July 1, 2020?

a. P5,750,000

b. P5,000,000

c. P5,050,000

d. P5,300,000

Question 11 - On December 15, 2019, Parker Company entered into a call option contract that gives the right but not an obligation to purchase 3,000 shares issued by Esther Company on April 15, 2020, at an exercise price (strike price) of P100 per share. Parker paid P3 for each option shares.

On December 31, 2019, market data suggests that Parker Company could sell option for P4 and Esther Company's share are selling at P100 per share. On April 15, 2020, the fair value of each option is P10 and Esther Company's share are selling at P110 per share.

What amount of derivative asset should Parker Company recognize on December 15, 2019?

a. None

b. P9,000

c. P12,000

d. P30,000

Question 12 - On December 15, 2019, Parker Company entered into a call option contract that gives the right but not an obligation to purchase 3,000 shares issued by Esther Company on April 15, 2020, at an exercise price (strike price) of P100 per share. Parker paid P3 for each option shares.

What amount of derivative asset should Parker Company recognize on December 31, 2019?

a. None

b. P9,000

c. P12,000

d. P30,000

Question 13 - On December 15, 2019, Parker Company entered into a call option contract that gives the right but not an obligation to purchase 3,000 shares issued by Esther Company on April 15, 2020, at an exercise price (strike price) of P100 per share. Parker paid P3 for each option shares.

If Parker Company exercised its right on April 15, 2020, what should be the initial cost of its new investment assuming the new investment is classified as available for sale?

a. P300,000

b. P309,000

c. P312,000

d. P330,000

Question 14 - On February 1, 2019, SC Company enters into a contract with San Miguel Corp. that gives SC Company the right to sell, and San Miguel Corp. the obligation to buy the fair value of 2,000 shares of SC Company's own ordinary share outstanding as of January 31, 2020 at a strike price of P196,000 (P98 per share) on January 31, 2020, if SC Company exercises the right. The contract will be settled net in cash, however, if SC Company does exercise the right, no payment will be made.

Below is pertinent relevant information:

	2/1/2019	12/31/2019	1/31/2020
Market price per share	P100/share	P95/share	P95/share
Fair value of options	P10,000	P8,000	P6,000

What option asset should SC Company recognize on February 1, 2019?

a. None

b. P5,000

c. P8,000

d. P10,000

Question 15 - On February 1, 2019, SC Company enters into a contract with San Miguel Corp. that gives SC Company the right to sell, and San Miguel Corp. the obligation to buy the fair value of 2,000 shares of SC Company's own ordinary share outstanding as of January 31, 2020 at a strike price of P196,000 (P98 per share) on January 31, 2020, if SC Company exercises the right. The contract will be settled net in cash, however, if SC Company does exercise the right, no payment will be made.

Below is pertinent relevant information:

	2/1/2019	12/31/2019	1/31/2020
Market price per share	P100/share	P95/share	P95/share
Fair value of options	P10,000	P8,000	P6,000

What amount should be reported in the December 31, 2019 profit or loss related to the above contract?

a. None

b. P2,000

c. P6,000

d. P8,000

Question 16 - On February 1, 2019, SC Company enters into a contract with San Miguel Corp. that gives SC Company the right to sell, and San Miguel Corp. the obligation to buy the fair value of 2,000 shares of SC Company's own ordinary share outstanding as of January 31, 2020 at a strike price of P196,000 (P98 per share) on January 31, 2020, if SC Company exercises the right. The contract will be settled net in cash, however, if SC Company does exercise the right, no payment will be made.

Below is pertinent relevant information:

	2/1/2019	12/31/2019	1/31/2020
Market price per share	P100/share	P95/share	P95/share
Fair value of options	P10,000	P8,000	P6,000

What is the net effect in the shareholder's equity as a result of the exercise of the option?

a. None

b. P4,000

c. P6,000

d. P8,000

Reference no: EM132781541

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