ACCT 5341 Syllabus
Bob Jensen
at Trinity University
| [02] Ausaf, Shuja | [03] White, Steven |
| [05] Dai, Wan Li | [06] Vogtsberger, Carl |
| [07] Devins, Sean | [08] Thompson, Anne |
| [10] Donohue, Alexia | [11] Sandoval, Nikki |
| [14] Gutierrez, Eugenia | [15] Roberts, Michelle |
| [17] Heinkel, Mark | [18] Ramirez, Ricardo |
| [19] Hobbs, William | [20] Poppe, Amanda |
| [22] Hoffman, Robert | [23] Nguyen, Nancy |
| [29] Ifrah, Laury | [30] Menchaca, Ruth |
| [31] Johnson, Colin | [32] Lee, Matthew |
You should check your email daily in case there are revisions of this assignment!
Accounting Theory Helpers and Links
Reading Assignments for This Week
A required reference for this course may be downloaded as follows:
One of the best documents the FASB generated for FAS 133 implementation is
called "Summary of Derivative Types." This document also
explains how to value certain types. It can be downloaded free from at http://www.rutgers.edu/Accounting/raw/fasb/derivsum.exe
Trinity University students may download from
J:\courses\acct5341\fasb\sfas133\derivsum22
If
you are having trouble finding something try a Google search.
Especially note that you can add terms and phrases at http://www.google.com/advanced_search?hl=en
For example, you can add a phrase in the second cell and individual words in the
top cell. You can fill in both cells
simultaneously to narrow your search.
Also note
that you can seek definitions in Google. In
the top cell type in --- define “phrase” where your phrase can be one word
like “contango” or “backwardation” or a phrase like “asian option”.
It is important to first type in the word “define” without quotation marks.
Second try a search within the standard itself. You can find digital versions of FAS 133 in the fasb folder on Drive J and IAS 39 in the iasb folder. Both folders are on the path J:\courses\Acct534
Each
student must submit an mentor attestation form.
This form is to be signed and turned in each week in class. These
forms can be found at http://www.trinity.edu/rjensen/acct5341/AttestMentor.htm
Notebook File 1 Question 01
What are some of the main distinctions between
firm commitments versus forecasted transactions in terms of SFAS 133 rules?
[Hint: See Paragraphs 4 (with Footnote 2), 21
(including Footnote 8), 28, 29 (especially for details), 37, and 323-324 of SFAS 133.
For a summary look up these terms in Bob Jensen's SFAS 133 Glossary at http://WWW.Trinity.edu/rjensen/acct5341/speakers/133glosf.htm]
Notebook File 1 Question 02
Many fair value hedges are tied to forecasted
transactions. How do SFAS 133 rules on such hedges differ if the hedges are for
existing assets and liabilities as opposed to forecasted transactions?
[Hint: Go to Paragraphs 362-370 of SFAS 133.]
Notebook File 1 Question 03
What is an "underlying" in the context of SFAS
133? What is a "notional" of a derivative instrument? Suppose
a firm purchases a call option to buy 100 shares of General Electric at a fixed price.
Assume the option expires in three months. Is this a derivative instrument
under SFAS 133? Identify the underlying and notional or lack thereof in this call
option contract. Would your answer change if the shares were in a privately-held
corporation and the shares must be physically delivered if the option is exercised?
[Hint: For a definition of terms got to Bob Jensen's SFAS 133 Glossary. For elaboration go to Paragraphs 6, 10, and 11 of SFAS 133.
Especially note Paragraph 6c.]
Notebook File 1 Question 04
Suppose a firm enters into a three day forward contract for physical delivery of 10,000
shares of General Electric. Is this a derivative instrument contract subject
to SFAS 133 rules?
[Hint: Look up "regular-way" in Bob Jensen's SFAS 133 Glossary. Also see Paragraph 10a of SFAS 133.]
Notebook File 1 Question 05
What are embedded derivatives and how do they
differ from compound derivatives? Provide three examples of an embedded derivative.
[Hint: Go to Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 06
What is the status of SFAS 80? Are commodity
contracts covered by SFAS 133? Can short sale commodity contracts be
hedging items under SFAS 133? Contrast with commodity contracts with
commodity-indexed embedded derivatives.
[Hint: Go to Paragraph 525 and Paragraphs 267-270 of SFAS 133. Also see Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 07
Suppose a firm agrees to pay 50 basis points in a
firm commitment to borrow $1 million at a fixed rate on a specified future date. Is
this derivative financial instrument subject to SFAS 133 rules? Would your
answer be the same if the contract was not a firm commitment and the company had an option
(for a 50 basis point fee) to enter into the loan at any time over the next three months?
Explain the FASB's reasoning on this issue.
[Hint: See Paragraph 6c of SFAS 133. Also see Bob Jensen's SFAS
133 Glossary.]
Notebook File 1 Question 08
What is a fair value hedge? Provide three
examples of a fair value hedge.
[Hint: Go to Bob Jensen's SFAS 13 Glossary at http://WWW.Trinity.edu/rjensen/acct5341/speakers/133glosf.htm
]
Notebook File 1 Question 09
What are the main conclusions in SFAS 133
regarding fair value accounting for derivative financial instruments?
[Hint: Go to Paragraphs 215-229 of SFAS 133. FASB
guidance for measuring fair value can be found in Paragraphs 312-319 of
SFAS 133. Especially note Paragraphs 247 and 331-337 of
SFAS 133. Jim Leisenring comments about " first shot in a religious
war" in my tape31.htm. Also see Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 10
What FASB standard covers investments in general but does
not give much guidance to accounting for derivative financial instruments?
This question will not appear on the quiz, although it is a prime CPA
Examination question area. I will give you the answer to this question below:
SFAS 115 Accounting for Certain Investments in Debt and Equity Securities
This Statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Those investments are to be classified in three categories and accounted for as follows:
19. For securities classified as
available-for-sale and separately for securities classified as held-to-maturity, all
reporting enterprises shall disclose the aggregate fair value, gross unrealized holding
gains, gross unrealized holding losses, and amortized cost basis by major security type as
of each date for which a statement of financial position is presented. In complying with
this requirement, financial institutions \6/ shall include in their disclosure the
following major security types, though additional types also may be included as
appropriate.
Notebook File 1 Question 11
What is the SFAS 133 treatment of securities
classified under SFAS 115 as "trading," "available-for-sale," and
"held-to-maturity?" Explain the FASB's reasons for different
accounting treatments for hedges under these three classifications.
[Hint: Look up these terms in Bob Jensen's SFAS 133 Glossary. For a negative aspect of the classification
"available-for-sale,", see the Eigth Circuit of Appeals court case referenced at
under "Fair Value" in Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 12
What is the six-month forward spot rate (in dollars) of one British pound based
upon yesterday's spot rates? Identify where you obtained the spot rate.
Illustrate a hedge using a forward contract and discuss the SFAS 133 accounting treatment.
[Hint 1: In addition to FAS 133,
students may find definitions and examples in "Summary of
Derivative Types" --- http://www.rutgers.edu/Accounting/raw/fasb/derivsum.exe
Trinity University students may download from
J:\courses\acct5341\fasb\sfas133\derivsum22
Especially note pp. 32-36.]
[Hint 2: Go to Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 13
What is the distinction between a forward rate contract and a
forward rate agreement (FRA)?
[Hint 1: In addition to FAS
133, students may find definitions and examples in "Summary of
Derivative Types" --- http://www.rutgers.edu/Accounting/raw/fasb/derivsum.exe
Trinity University students may download from
J:\courses\acct5341\fasb\sfas133\derivsum22
Especially note pp. 82-83.]
[Hint 2: Go to Bob Jensen's SFAS 133 Glossary.]
Notebook File 1 Question 14
Partnership Questions and Problems from your Strong textbook:
Questions 22 and 23 on Page 57.
Problems 13 and 14 on Page 212.
These need not be turned in to Dr. Jensen.
By Yourself Reading Reading and Practice Assignments (take hand-written notes of assigned readings):
Strong Chapters 3 and 9. Take notes on the key points.
SFAS 133 Paragraphs (27-35, 293-311, 244-266,
371-383) and Example 2 beginning in Paragraph 111.
For class discussion and the quiz, carefully review Paragraphs 6-11.
Take the Self Tests on Pages 55 and 211 of your Strong textbook.
(You are required to bring your textbooks to class)