Bob Jensen has not taught any undergradutate courses since 1998. In April 1999, Trinity University removed web sites of students who had graduated or otherwise were no longer enrolled as students at Trinity. You can view the web sites of current students by following the links at http://www.resnet.trinity.edu/ .
Bob Jensen's graduate student projects were also removed from the server following their graduation from Trinity University. However, the ACCT 5341 files of a number of former graduate students were recovered and placed back on the server. These are listed below. Current graduate students are doing database projects that are only available on a campus LAN server.
Carla V. Davalos For
her case and case solution on Accounting for Straddles
(Not Currently Available)
This case examines the purchase of a straddle- buying an
equal number of puts and calls purchased concurrently on the same underlying stock with
the same identical strike price and expiration dates. Accounting for the subsequent
changes in the value of the underlying security, allows students to examine the effects of
a long straddle.
Brian N. Gibson
For his project on Bankruptcy Prediction: The Hidden Impact of
Derivatives click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/gibson/framesbankrupt.htm
This term project for Accounting 5341 demonstrates the impact
of derivatives on financial distress risk for a company. Logit analysis is used to predict
bankruptcy of XYZ Company under two scenarios. First, the probability of bankruptcy is
calculated without considering derivatives used. Then, the probability is recalculated in
light of employee stock options and a net payable interest rate swap.
Lisa A. Harden
For her project on SEC Disclosure Requirements for Derivatives
(Not Currently Available)
SEC registrants with market capitalization of more than $2.5
billion and a fiscal year ending after June 15, 1997 were required to implement the new
disclosures in their filings. One company that was required to make the new disclosures
was SBC Communications, Inc (SBC). SBC is a holding company whose subsidiaries and
affiliates operate predominantly in the communications services industry. In its 1997 Form
10-K SBC made the quantitative and qualitative disclosures about market risk. These are
listed under Item 7A of the 10-K.
Debra W. Hutcheson For
her case and case solution on Accounting for Commodity and Contango Swaps,
(Not Currently Available)
This case examines the interplay of a cotton consumer and a
cotton producer, both participating in a commodity swap, one of the many commodity-based
financial instruments available to users. Each party wants to protect itself from
commodity price risk and the cotton swap allows each participating party to
"lock-in" a price for 6 million pounds of cotton. One party might lose in the
cotton swap and, therefore, must enter into some other derivative alternatives.
Additionally, this case examines the requirements for accounting for these contracts under
the FASB’s latest exposure draft on accounting for derivatives and the
"forward-looking" disclosure required by the SEC.
Audrey C. Kinter For
her case and case solution on click on Accounting for Derivatives: Using Financial
Engineering to Hedge a Possible Future Foreign Contract Commitment click on
http://WWW.Trinity.edu/rjensen/acct5341/1998sp/kinter/main.htm
Abstract: The objective of this case is to outline to
students the analysis that is necessary to design a
hedging strategy for a possible foreign currency commitment. The case will use a
hypothetical
corporation and their project bid to a German construction company to illustrate the
various strategies the firm could employ to hedge against possible foreign currency
movements. Students will come to understand that different strategies in some scenarios
have inherent risks that cannot be removed.
Brandon J. Lamb For
his case and case solution on Case Study on Asian Options click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/lamb/default.htm
The objective of this case is to illustrate the
implementation of a derivative financial instrument to hedge against a particular risk.
Students are shown how to account for a derivative transaction used by Texas Electronics
Company (TEC) to hedge foreign exchange rate exposure. The case is designed to help
students identify and solve derivatives problems and to present current accounting
standards related to derivatives.
Michael G. Mc Bride
For his case and case solution on CASE STUDY: MGM, INC. click on
http://WWW.Trinity.edu/rjensen/acct5341/1998sp/mcbride/mgm.htm
This case examines foreign currency forward contracts and
foreign currency swaps as utilized by MGM, Inc., a manufacturer of athletic shoes and
athletic apparel. MGM conducts a sizeable portion of its operations in England, and enters
into forward contracts and a swap in order to hedge the Company’s foreign currency
exchange rate risk and lock in a low interest rate on financing for a new manufacturing
plant. Students are directed to account for the two contracts from inception to
termination under both current accounting standards as well as under the FASB’s
Exposure Draft 162-B (where applicable). Students are also directed to investigate SFAS
No. 52 governing these contracts as well as other pertinent information relating to
foreign currency forward contracts and foreign currency swaps.
Linda O.
Norman For her case and case solution on Financial Derivatives and
Foreign Currency Risk go to http://WWW.Trinity.edu/rjensen/acct5341/1998sp/norman/quantotc.htm
The rest of this paper is dedicated to providing the reader
with an illustration of a foreign currency derivatives contract. The contract, a quanto
swap, illustrates one combination of the standard derivative instruments. A quanto swap, also known as a diff
swap, is a combination of the foreign currency swap and interest rate swap.
Recall that the currency swap usually involves the exchange of principal and interest
payments of a local firm for that of a foreign entity. In an interest rate swap, both of
the firms are local and only the interest payments are exchanged. Out of the intersection
of the currency and interest rate swap comes the quanto swap. This contract involves the
exchange of interest payments of a local firm for that of a foreign entity. The local firm
will pay interest at the foreign interest rate, but its notional will be held in the local
currency.
James C. Paulus For
his case and case solution on Swaploans, Exchange Rate Hedging and Foreign
Currency(Not Currently Available)
The solution: borrow money from a willing U.S. investor who
wants to speculate in the Mexican peso market. The savings in interest rates will be
incredible. If Anguiano Hoteles can borrow in dollars and can hedge the currency exposure
at a cost less than the difference between the interest rate on the dollar and the current
interest rate on the peso, they will be better off borrowing dollars in the U.S. market.
Anguiano’s President has made it clear that their Accountants will follow GAAP as
they want to eventually be recognized in the U.S. stock market and must follow GAAP to do
so.
John D. Payne For
his case and case solution entitiled A Case Study of Accounting for an
Interest Rate Swap and a Credit Derivative (Not Currently Available)
The objective of this case is to provide students with an
in-depth examination of a vanilla swap and to introduce students to the accounting for a
unique hedging device--a credit derivative. The case is designed to induce students to
become familiar with FASB Exposure Draft 162-B and to prepare students to account for a
given derivative transaction from the perspective of all parties involved. In 1991,
Vandalay Industries borrowed $500,000 from Putty Chemical Bank and simultaneously engaged
in an interest rate swap with a counterparty. The goal of the swap was to hedge away the
risk that variable rates would increase by agreeing to a fixed-payable,
variable-receivable swap, thus hopefully obtaining a lower borrowing cost than if variable
rates were used through the life of the loan. In 1992, Putty Chemical Bank entered into a
credit derivative with Mr. Pitt Co. in order to eliminate the credit risk that Vandalay
would default on repayment of its loan principal to Putty.
Willie J. Roberts For
his case and case solution entitled Interest Rate Caps Using Put Options: A Case
Analysis
(Not Currently Available)
The following is a case analysis for an Accounting Theory
Project for Robert J. Jensen. It entails a fictional company in need of capital to fund a
project. The following case will look at accounting issues involved in the case, as the
company uses an interest rate cap by way of a put option to hedge against interest rate
risk. A proposed method for measuring risk designed to meet the SEC rule of
"quantitative" in "forward-looking information, which includes these
quantitative and qualitative disclosures outside the financial statements."
Jennifer K. Robinson
For her case and case solution entitled TAX RATE SWAPS
(Not Currently Available)
This case examines an unusual type of derivative called a tax
rate swap and its accounting treatment. Tax rate swaps are rare due to the
relatively stable nature of tax rates in most nations. In certain circumstances, however,
they can provide an effective means for one company to "lock-in" its current tax
rate while another company speculates that that rate will change in its favor. Examination
of this case should provide an introduction to the workings of a tax rate swap, as well as
the suggested accounting treatment for such a transaction. (Note: It is important to know
that tax rate swaps, described in this paper, and tax swaps are very different.)
Manisha Shah For
her case and case solution on Accounting For Options and Futures in the Gas
Industry click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/shah/cover.htm
The objective of this case is to provide students with an
opportunity to prepare and evaluate accounting for a derivative transaction used by Burns
Energy Associates as a means of managing risk. The case is designed to expose the student
to commodity derivatives and its place in the energy industry. Also, the case focuses on
enhancing students' ability to analyze a series of transactions while introducing current
standards to effectively account for them. In 1997, Burns contracted Smithers Investment
Group to recommend a hedging strategy that would protect it from adverse price movements
in the natural gas market. As a result, the company entered into a natural gas futures
option to hedge against the possibility of falling prices in the marketplace. Attaching
option packages such as caps, floors, and collars further complicate this case.
The case attempts to reduce the complexity of derivative transactions and the accounting
that must follow through the logic developed in the study questions. The information
presented in the industry overview and introduction to derivatives will allow the student
to have a better understanding of commodities derivatives in the energy industry. The case
and the questions following will provide the student with the ability to analyze the risks
involved in this type of contract. Furthermore, the case addresses the attributes of
accounting for these transactions and how they affect the company's financial statements.
Brian T. Simmons For
his case and case solution entitled ACCOUNTING FOR CIRCUS SWAPS: AN INSTRUCTIONAL
CASE click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/simmons/case.htm
This case examines a basic circus swap which involves not
only the exchange of floating interest rate for fixed, but also one currency for another.
Separation of the effects from both interest rate and foreign currency fluctuations is no
simple matter. In fact, no formal accounting pronouncements specifically address this
issue.
The introduction first reviews the history and reasoning of pronouncements leading up to
Exposure Draft 162-B. For years, institutions have relied on settlement accounting to
record their derivative instruments. With growing concern over the risk of these
instruments, however, the SEC and FASB have attempted to increase the detail of disclosure
regarding the value and risk of their derivative portfolio. The case provides an example
of a hybrid instrument in the form of a circus swap. The case questions review the
accounting for these types of instruments under the current settlement accounting
guidelines as well as the new fair-value method. Additionally, a simplistic measure of
Risk Per Contract (RPC) is developed. By using information that is easy for management to
obtain, the likelihood of the benefits of RPC outweighing the costs is greatly enhanced.
Nicolas M. Somoano For
his case and case solution on A study in Foreign Currency Option Contracts
(Not Currently Available)
The purpose of this case is to examine a transaction in which
Company A hedges the foreign exchange risk of its anticipated foreign currency
transactions with purchased put options in order to protect itself from foreign currency
depreciation. The case will look at why Company A would enter into such a
transaction, and the hedge accounting associated with the purchase of foreign currency
options.
Lisa C. Stein (Castle)
For her case and case solution entitled Current Guidance for Derivative
Disclosure
(Not Currently Available)
Castle Corporation participates in three different derivative
instruments on March 6, 1998, all for hedging purposes. They are as follows:
1.
Derivative to lock in a borrowing rate: Castle Corp. will need to borrow 20,000,000 French
francs on December 15, 1998 for five years. The company expects interest rates to go up
and wants to lock in a low interest rate. In order to lock in a rate, the company
decides to sell futures contracts. The contract price for French Government bonds for
delivery in April, is 99.00.
2.
Derivative to lock in a lending rate: Castle Corp. expects to receive 3,750,000
British pounds
on December 15, 1998 from a customer, hold it for 3 months in an account, and then use it
to purchase a building. The company expects interest rates to drop between now and
December 17 and wants to lock in a high interest rate to lend the 3,750,000 pounds for
three months. A three month December futures contract, with delivery on December 17, is
currently selling for 94.20.
3.
Foreign Currency Option: Castle Corp. purchased inventory at a cost of $250,000
Canadian dollars, due on April 15, 1999. The company wants to hedge against the risk that
the value of the dollar will decrease compared to the value of the Canadian dollar, which
in turn will cause the company to have pay more U.S. dollars for the purchase.
Mariquit D. Viola For
her case and case solution entitled Using Current Technologies as Tools in Valuing
Foreign Currency Contracts (A JavaScript Interactive Case)
click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/viola/project.htm
On April 14, 1998, an investor ran a search on a company's
database through its web search engine to find any risky contracts the company had entered
into. He found: On March 1,1998, Cafe Import (the company) purchased food and
general merchandise from Minako Usa, a Japanese wholesaler. Cafe Import has now an account
payable in the amount of 257,200 yen, which is due in 90 days. The investor wants to
know the current U.S. dollar value of this account payable. Using a web calculator such as
on the Bloomberg web site, he can enter in the principal amount of 257,200 yen and receive
the current value using the current exchange rates.
Jeffrey D. Wilson For
his case and case solution entitled Bull Call Spread
(Not Currently Available) (If a password request pops up, just hit cancel)
This project is intended to illustrate a corporations use of
futures options as a hedge. It describes a company's motivation for using options, the
accounting that should be used and how risk is effected by the use of options as a hedge.
This case uses an individual example and not comprehensive. Many other scenarios are
possible and many other uses of options exist. This case assumes that the reader has a
general familiarity with options and accounting. If the reader is not familiar with
options it would be helpful to first visit this site to gain a general understanding. The
main focus of this project is to discuss and explain the accounting proposed by the FASB
in Exposure Draft 162-B as well as the related risks of off balance sheet financing.
Suzanne M. Winegar For
her case and case solution entitled Understanding swaptions: A case study
(Not Currently Available)
The objective of this case is to provide an example of a
company that purchases an interest rate swaption in order to hedge the variability of its
interest payments. Swaptions are a type of derivative financial instrument for which there
are no accounting standards or guidelines. This case explains one method that could be
used to account for swaptions and mark them to market. In order to mark the swaptions to
market, this case uses the Black-Scholes Model to determine the fair value of the
swaption. The case presents a series of questions dealing with valuation and accounting
issues, and ends with a discussion of the risk involved in using swaption derivatives.
Joseph F.
Zullo For his relational database project in Microsoft Access
that disaggregates and then aggregates various types of risk on interest rate swaps,
click on http://WWW.Trinity.edu/rjensen/acct5341/1998sp/zullo/title.htm
The heart of this project is a relational database. The term
project topic was "suggested aids for using emerging technologies in measuring and
evaluating investment risk." To that end, I created a relational database that is
able to track the use of derivative instruments and assign risk to individual contracts.
The creation of the database is an attempt at dissaggregated reporting.
Theoretically, an investor could access the database through the Internet and compute
custom reports and evaluate individual measures of risk associated with each derivative.
The benefit of dissaggregated reporting lies in the investor’s ability to perform the
aggregation of relevant data. In today’s environment, investors have to rely on
annual financial statements of a company to acquire relevant information. The financial
statements of a company do not always provide a complete picture of the financial
condition of the company. Notably, off-balance sheet items such as derivative financial
instruments do not appear in the body of the financial statements. The FASB and the SEC
have made strides to overcome this reporting deficiency with pronouncements that require
more informational disclosures in the financial statements.