Exam 19: Derivatives, Contingencies, Business Segments, and Interim Reports

On July 1, 2011, Cahoon Company sold some limited edition art prints to Sitake Company for ¥47,850,000 to be paid on September 30 of that year. The current exchange rate on July 1, 2011, was ¥110=$1, so the total payment at the current exchange rate would be equal to $435,000. Cahoon entered into a forward contract with a large bank to guarantee the number of dollars to be received. According to the terms of the contract, if ¥47,850,000 is worth less than $435,000, the bank will pay Cahoon the difference in cash. Likewise, if ¥47,850,000 is worth more than $435,000, Cahoon must pay the bank the difference in cash. Using the information above and assuming the exchange rate on September 30 is ¥105=$1, what amount will Cahoon pay to, or receive from, the bank (rounded to the nearest dollar)?

A company identified four industry segments as reportable out of a total of eight subunits of the company based on the identifiable asset criterion. Total company sales excluding intersegment sales are $2,000,000 for the year, and the sum of sales for the four identified segments is $1,300,000. Given these facts, the company

Vita Technologies is involved in cancer research. Vita is involved in a number of lawsuits related to their operations. For each case, indicate the disclosure that should be provided by Vita Technologies in the annual financial statement.

The following segments were identified for an enterprise: Which of the five segments is a reportable segment?

Which of the following is not required under current GAAP for disaggregated information relating to geographic area information?

Which of the following neednot be disclosed on a segmental basis for a subunit identified as a reportable segment?

Gain contingencies that are remote and can be reasonably estimated

A truck owned and operated by Abbott Company was involved in an accident with an auto driven by L. Costello on January 12, 2011. Abbott received notice on April 24, 2011, of a lawsuit for $800,000 damages for a personal injury suffered by L. Costello. Abbott's counsel believes it is probable that L. Costello will be successful against the company for an estimated amount in the range between $100,000 and $400,000. No amount within this range is a better estimate of potential damages than any other amount. It is expected that the lawsuit will be adjudicated in the latter part of 2012. What amount of loss should Abbott accrue at December 31, 2011?

Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $100 for the call option. Using the information above, the call option would be recorded in the accounts of Hall as

An agreement between two parties to exchange a specified amount of a commodity, security, or foreign currency at a specified date in the future with the price or exchange rate being set now is referred to as a(n)

Contingent liabilities will or will not become actual liabilities depending on

Which of the following liabilities is not contingent?

Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $100 for the call option. Using the information above, the 1,000 shares of WSM stock in this contract is referred to as the

Uncertainty about the future market value of an asset is referred to as

According to Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," how do firms identify reportable segments?

A company that receives 10 percent or more of its revenue from sales to a single customer must disclose the

A company enters into a futures contract with the intent of hedging an account payable of DM400,000 due on December 31. The contract requires that if the U.S. dollar value of DM400,000 is greater than $200,000 on December 31, the company will be required to pay the difference. Alternatively, if the U.S. dollar value is less than $200,000, the company will receive the difference. Which of the following statements is correct regarding this contract?

On January 1, 2011, Cougar Company received a two-year $500,000 loan. The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2011, was 10 percent. Aggie company also has a two-year $500,000 loan, but Aggie's loan carries a fixed interest rate of 10 percent. Cougar Company does not want to bear the risk that interest rates may increase in year two of the loan. Aggie Company believes that rates may decrease and they would prefer to have variable debt. So the two companies enter into an interest rate swap agreement whereby Aggie agrees to make Cougar's interest payment in 2012 and Cougar likewise agrees to make Aggie's interest payment in 2012. The two companies agree to make settlement payments, for the difference only, on December 31, 2012. If the interest rate on January 1, 2012 is 8 percent, what will be Cougar's settlement payment to/from Aggie?

Cosmos Corporation sells five different types of products. The company is divided for internal reporting purposes into five different divisions based on these five different product lines. The company should prepare the note disclosure for disaggregated information based upon the

Maxwell Corporation was involved in a lawsuit with the EPA alleging inadequate air pollution control facilities at its Granger plant site during 2008. At December 31, 2011, it appeared probable that the EPA would settle for approximately $150,000. This event should be recognized in 2011 as a(n)