Question

At the beginning of the year, a capital projects fund purchases $4 million in equipment for...

At the beginning of the year, a capital projects fund purchases $4 million in equipment for cash. The equipment has a 10-year life, straight-line.

A year-end, this purchase reduces the capital projects fund's fund balance by

Select one:

A. $4 million.

C. $3.6 million.

D. No effect.

A company uses futures to hedge a firm commitment to buy inventory. Which statement is true concerning the hedge?

Select one:

A. The company takes a short position in futures and records changes in their value in OCI.

B. The company takes a long position in futures and records changes in their value in income.

C. The company takes a short position in futures and records changes in their value in income

A firm carries a commodity inventory at a cost of $750,000 and plans to sell it in 60 days. Its market value is currently $800,000. To hedge against a decline in value of the commodity, the company sells commodity futures for delivery in 60 days at a price of $800,000. There is no margin deposit. At the company's 2020 year-end, 30 days later, the 30-day futures price is $780,000 and the inventory value declined to $779,000. Income effects of the inventory and the futures are reported in cost of goods sold.

What is the net effect of value changes in the futures and the inventory on cost of goods sold?

A. Increase $1,000

B. Increase $21,000

C. Decrease $1,000

A company uses futures to hedge a firm commitment to buy inventory. Which statement is true concerning the hedge?

A. The company takes a short position in futures and records changes in their value in OCI.

B. The company takes a long position in futures and records changes in their value in income.

C. The company takes a short position in futures and records changes in their value in income.

Which statement is true concerning IFRS goodwill impairment reporting?

Select one:

A. IFRS does not allow qualitative evaluation of goodwill impairment.

B. IFRS does not require goodwill impairment recognition.

D. IFRS allows goodwill impairment to adjust fair value reserves in equity.

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Homework Answers

Answer #1

Solution:

Answer 1.

The correct answer is $400,000.

Answer 3.

Option (A). Increase $1,000. is correct.

Decline in value of inventory = $800,000 - $779,000

= $21,000

Gain on Future contract at year end = $800,000 - $780,000

= $20,000 Net gain or (loss)

= $20,000 - $21,000

= ($1,000)

Answer 5.

IFRS allows goodwill impairment in other comprehensive income when the revaluation increases the value

So, the correct answer is IFRS allows goodwill impairment to be reported in other comprehensive income.

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