DERIVATIVES PROBLEM G Assume that the facts in previous problem also apply here, except that the Company decides that it would like to apply cash-flow hedge accounting to the transaction. The Company, therefore, designates the silver futures contracts as a cash-flow hedge of the anticipated sale of the silver inventory to its Japanese customer (i.e., the Company does not have a contract to sell the silver in March but anticipates that the sale will occur, based on its sales history with this customer). In this transaction, the Company is hedging its exposure to changes in cash flows from the anticipated sale. MOORE NOTES: DERIVATIVES 39 Important note: Because this is a cash flow hedge, you will not be marking the inventory to fair value. Indeed, you do the "normal thing" that one would do for inventory. Well, it turns out that the "normal thing" for inventory is something called lower-of-cost-or-market. That is NOT fair value (it's some calculation that does not typically end up being fair value, although it could get close to fair value.). So for purposes of this problem, be aware that there probably would be some kind of write-down of the inventory, but NOT because of the hedging situation. REQUIRED: Show all entries. Note: this problem is adapted from the PWC "A Guide to Accounting for Derivative Instruments and Hedging Activities.'" DERIVATIVES PROBLEM G Assume that the facts in previous problem also apply here, except that the Company decides that it would like to apply cash-flow hedge accounting to the transaction. The Company, therefore, designates the silver futures contracts as a cash-flow hedge of the anticipated sale of the silver inventory to its Japanese customer (i.e., the Company does not have a contract to sell the silver in March but anticipates that the sale will occur, based on its sales history with this customer). In this transaction, the Company is hedging its exposure to changes in cash flows from the anticipated sale. MOORE NOTES: DERIVATIVES 39 Important note: Because this is a cash flow hedge, you will not be marking the inventory to fair value. Indeed, you do the "normal thing" that one would do for inventory. Well, it turns out that the "normal thing" for inventory is something called lower-of-cost-or-market. That is NOT fair value (it's some calculation that does not typically end up being fair value, although it could get close to fair value.). So for purposes of this problem, be aware that there probably would be some kind of write-down of the inventory, but NOT because of the hedging situation. REQUIRED: Show all entries. Note: this problem is adapted from the PWC "A Guide to Accounting for Derivative Instruments and Hedging Activities