Controller Of Thomas Foods Case Summary
Hayley Wicks
ACCT 540
Week 5
Course Project, Case 1: Applying the Authoritative Sources
This week, I will discuss my findings from the authoritative sources that relate to the case and then apply those concepts and explain how they relate to the case directly. Since the Controller of Thomas Foods is inexperienced with regards to accounting for hedging strategies, I have been asked to provide examples of different hedging strategies and explain how each example is implemented as well as how it is accounted for.
Two types of hedging strategies that the Controller should become familiar with are cash flow hedges and fair value hedges. Cash flow hedges relate to forecasted transactions where the effective portions of the hedge is initially reported in other comprehensive income and are later reclassified into earnings any portion of the hedge that is ineffective is reported currently in earnings (FASB ASC 815-30, 2010). Fair value hedges can be associated with …show more content…
Also assume that Thomas foods purchases on average 1,000 pounds of tomatoes from a local farmer and that two months prior to harvest, and proposes a hedging strategy in which local farmer sells a two-month futures contract to Thomas Foods for 1,000 pounds of tomatoes. Even though the futures contracts are for the tomatoes that are expected to harvest in two months, the futures contracts and hedged tomatoes have different bases since the futures contracts are based on the ripened, harvested tomatoes, while the hedged item still has two months left in its growing cycle. Therefore, Thomas Foods cannot automatically assume that the hedge will be highly successful in counterbalancing the changes in fair
ACCT 540
Week 5
Course Project, Case 1: Applying the Authoritative Sources
This week, I will discuss my findings from the authoritative sources that relate to the case and then apply those concepts and explain how they relate to the case directly. Since the Controller of Thomas Foods is inexperienced with regards to accounting for hedging strategies, I have been asked to provide examples of different hedging strategies and explain how each example is implemented as well as how it is accounted for.
Two types of hedging strategies that the Controller should become familiar with are cash flow hedges and fair value hedges. Cash flow hedges relate to forecasted transactions where the effective portions of the hedge is initially reported in other comprehensive income and are later reclassified into earnings any portion of the hedge that is ineffective is reported currently in earnings (FASB ASC 815-30, 2010). Fair value hedges can be associated with …show more content…
Also assume that Thomas foods purchases on average 1,000 pounds of tomatoes from a local farmer and that two months prior to harvest, and proposes a hedging strategy in which local farmer sells a two-month futures contract to Thomas Foods for 1,000 pounds of tomatoes. Even though the futures contracts are for the tomatoes that are expected to harvest in two months, the futures contracts and hedged tomatoes have different bases since the futures contracts are based on the ripened, harvested tomatoes, while the hedged item still has two months left in its growing cycle. Therefore, Thomas Foods cannot automatically assume that the hedge will be highly successful in counterbalancing the changes in fair