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UNIVERSITAS INDONESIA

AKL 2 Ekstensi Mid Term Quiz (TAKE HOME)

Dosen : Taufik Hidayat, Asdos : Rainer M.F.

INFORMATIONS
1. PLEASE DO THIS QUIZ BY ANSWERING PROBLEM 1 TO 5 (OBLIGATORY) AND PROBLEM 6
(OPTIONAL) !
2. PLEASE SUBMIT THE QUIZ AT THE FIRST TUTORING MEETING AFTER THE MID TERM EXAM
3. PLEASE REMEMBER THAT THIS QUIZ HAS THE PURPOSE FOR PRACTICES BEFORE THE
EXAM, SO IT WILL BE BETTER THAT YOU FINISH THE QUIZ BEFORE THE MID TERM EXAM
Problem 1 Derivative (30%)
On November 12, 2013, JP Morgan Chase acquired 200 shares of General Electric at a cost of \$ 12
per share. JP Morgan Chase classifies them as available-for-sale securities. On this same date, JP
Morgan Chase decides to hedge against a possible decline in the value of the securities by
purchasing, at a cost of \$100, an at-the money put option to sell the 200 shares at \$12 per share.
The option expires on March 12, 2014. The fair values of the investment and the options follow:

Instruction:
a. Prepare the entries required on November 12, 2013, to record the purchase of the General
Electric stock and the put options (10%)
b. Prepare the entries required on December 31, 2013, to record the change in intrinsic value and
time value of the options, as well as the revaluation of the available-for-sale securities. (10%)
c. Prepare the entries required on March 12, 2014, to record the exercise of the put option and
the sale of the securities at that date. (10%)
Problem 2 Derivatives Part 2 - Swap [Fair Value Hedge] (30%)
On January 2011, AAW Co. borrowed a \$20,000,000 loan from bank at a fixed rate 10% p.a with
interest due on a semi annual basis. The loan was for a period of two years. Worrying that interest
rates were likely to decline and wishing to change its obligations to a floating rate basis, AAW Co.
entered into a swap to receive a fixed rate of 10% per annum in return for the payment of a variable
LIBOR. The notional amount of the swap was \$20,000,000. The swap was settled, and the variable
rate was reset for the following semi-annual interest payment based on the beginning LIBOR. The
rates are as follows:
Date
1 January 2011
30 June 2011
31 December 2011

LIBOR as at this date used for subsequent halfyear payment

10.0% p.a
9% p.a
8.8% p.a

Freedom is not worth having if it does not include the freedom to make
mistakes. Mahatma Gandhi

UNIVERSITAS INDONESIA

AKL 2 Ekstensi Mid Term Quiz (TAKE HOME)

Dosen : Taufik Hidayat, Asdos : Rainer M.F.

30 June 2012
8% p.a
Notes: Flat yield curve assumptions hold; credit risk remains conctant; the swap matured at 31
December 2012, which means that the Fair Value of Swap will be zero at that date
Instruction:
Please make the necessary journals since the inception of loan to the maturity date. Please make the
schedule for swap before you make the journals!
Problem 3 Embedded Securities (15%)
Berkshire Hathaway issues 500 convertible bonds at January 1, 2013. The bonds have a five year life,
with a par value of \$ 2,000 per bond, giving total proceeds of \$ 1,500,000 at 7% Interest rate.
Interest is payable annually. Each bond is convertible into 100 ordinary shares (par value of \$5).
When the bonds are issued, the market rate of interest for similar debt without the conversion
option is 6%.
Instruction
a. Compute the liability and equity component of the convertible bond on January 1, 2013 (5%)
b. Prepare the Journal entry to record the issuance of the convertible bond on January 1, 2013
(5%)
c. Prepare the Journal entry to record the repurchase of the convertible bond for cash at
January 1, 2018. Assume that the payment of interest has been recorded (5%)

Problem 4 Reportable Segment (10%)

Banca Corp is engaged solely in manufacturing operations. The following data (Consistent with prioryear data) pertain to the industries in which operations were conducted for the year ended
December 31, 2013.

Instruction
Prepare schedules to show which segments are separately reportable

Freedom is not worth having if it does not include the freedom to make
mistakes. Mahatma Gandhi

UNIVERSITAS INDONESIA

AKL 2 Ekstensi Mid Term Quiz (TAKE HOME)

Dosen : Taufik Hidayat, Asdos : Rainer M.F.

Problem 5 Joint Arrangements (15%)

Here are the cases for Problem 5:
a. A large telecommunications organization named TC, is seeking to establish operations in a
relatively undeveloped communications environment. The in-country requirements do not
allow a local entity with a telecom license to be controlled by a foreign company. TC
establishes a separate company with a local investor to allow TC to enter this market. The
legal form of the company confers the rights to the assets and obligations for liabilities to
the company itself. A shareholders agreement is also established between TC and the local
investor that requires all decisions to be made jointly. The agreement also confirms that: the
assets of the arrangement are owned by the company. Neither party will be able to sell,
pledge, transfer or otherwise mortgage the assets; the liabilitiy of the parties is limited to
any unpaid capital; profits of the company will be distributed to TC and the investor 60/40,
being the parties interest in the arrangement respectively.
b. Three separate aerospace companies form a consortium to jointly manufacture an aircraft. A
consortium agreement is signed, which outlines the activities of the arrangement and
establishes a joint operating committee. A representative from each company sits on the
joint operating committee; decisions are made by unanimous consent. Each company carries
responsibility for different areas of expertise such as: manufacturing engines; manufacturing
fuselage and wings; and aerodynamic. The company carry out different parts of the
manufacturing process, each using its own resources and expertise in order to manufacture,
market and distribute the aircraft jointly. The three companies share the revenues from the
sale of aircraft and jointly incur expenses. The revenues and common costs are shared as
contractually agreed in the consortium agreement. A separate bank account is established
through which revenue is received and shared costs paid. The bank account is in the name of
the three parties trading as the consortium. Each company also incurs their own separate
costs such as labour costs, manufacturing costs, supplies, inventory of unused parts and
work in progress. Each company recognizes their separately incurred costs in full.
Instruction:
1. Please classify the cases above which types of JA they are! (5%)
Problem 6 Bonus 15% (Segment Disclosure)
Toyota Motor reported the following consolidated data for 2013:

Data reported for Toyotas four operation divisions are as follows:

Freedom is not worth having if it does not include the freedom to make
mistakes. Mahatma Gandhi

UNIVERSITAS INDONESIA

AKL 2 Ekstensi Mid Term Quiz (TAKE HOME)

Dosen : Taufik Hidayat, Asdos : Rainer M.F.

Intersegment sales are priced at cost, and all goods have been subsequently sold to non-affiliates.
Some joint production cost are allocated to the divisions based on total sales. These joint costs were
\$45,000 in 2013. The companys corporate center had \$20,000 of general corporate expenses and
\$120,000 of assets that the chief operating decision maker did not use in making the decision
regarding the operating segments.
Instruction:
a. Prepare a segmental disclosure worksheet for the company (10%)
b. Prepare schedules showing which segments are reportable. (5%)

Freedom is not worth having if it does not include the freedom to make
mistakes. Mahatma Gandhi