Working Paper 285
Bob Jensen at Trinity University


Exhibit 4
MarginWHEW Bank Case Journal Entries and Summary of Results
(Students are required to fill in the numbers shown in red.)

Instructions:  Please fill in debits without dollar signs and credits in parentheses.  If there is no entry for a given account, please leave it blank rather than entering a zero.  Note that all accounts listed for a given date will not necessarily have entries on that date.

 Discounting

at 0.0% APR Discounting at 6.0% APR

 

 

Debit

 

Debit

 

Date

MarginWHEW Bank Accounts

(Credit)

Balance

(Credit)

Balance

1999

Assumed FAS 133 discount rate =

0.000000%

0.000000%

0.016438%

0.016438%

17-Dec

Cash

10,000,000

10,000,000

10,000,000

10,000,000

 

Notes payable

(10,000,000)

(10,000,000)

(10,000,000)

(10,000,000)

 

-To record borrowing for one year

 

 

 

 

 

 

 

 

 

 

17-Dec

Cash

(10,000,000)

0

(10,000,000)

0

 

Notes receivable

10,000,000

0

10,000,000

0

 

-To record lending for one year

 

 

 

 

 

 

 

 

 

 

17-Dec

Cash

(500)

(500)

(500)

(500)

 

Futures margin account 

500

500

500

500

 

-To record margin account

 

 

 

 

 

 

 

12/31/99

 

12/31/1999

31-Dec

Cash

0

(500)

0

(500)

 

Futures margin account 

2,250

2,750

2,186

2,686

 

Other comprehensive income (OCI)

(3,000)

(3,000)

(2,918)

(2,918)

 

Interest expense (revenue)

750

750

732

732

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

01/31/00

 

01/31/2000

31-Jan

Cash

0

(500)

0

(500)

 

Futures margin account 

8,000

10,750

7,894

10,580

 

Other comprehensive income (OCI)

(7,500)

(10,500)

(7,348)

(10,266)

 

Interest expense (revenue)

(500)

250

(546)

186

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

02/29/00

 

02/29/2000

29-Feb

Cash

0

(500)

0

(500)

 

Futures margin account 

31,000

41,750

30,489

41,069

 

Other comprehensive income (OCI)

(42,000)

(52,500)

(41,305)

(51,571)

 

Interest expense (revenue)

11,000

11,250

10,816

11,002

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

03/17/00

 

03/17/2000

17-Mar

Cash

28,500

28,000

28,500

28,000

 

Futures margin account 

8,250

50,000

7,837

48,906

 

Other comprehensive income (OCI)

(11,000)

(63,500)

(10,506)

(62,077)

 

Interest expense (revenue)

(25,750)

(14,500)

(25,831)

(14,829)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

 

 

 

17-Mar

Cash

200,000

228,000

200,000

228,000

 

Interest expense (revenue)

(200,000)

(214,500)

(200,000)

(214,500)

 

-To record interest on note receivable

 

 

 

 

 

 

 

 

 

 

17-Mar

Cash

(145,347)

82,653

(145,347)

82,653

 

Interest expense (revenue)

145,347

(69,153)

145,347

(69,153)

 

-To record interest on note payable

 

 

 

 

 

 

 

03/31/2000

 

03/31/2000

31-Mar

Cash

0

82,653

0

82,653

 

Futures margin account 

1,000

51,000

1,092

49,998

 

Other comprehensive income (OCI)

(2,000)

(65,500)

(2,104)

(64,181)

 

Interest expense (revenue)

(53,653)

(68,153)

(53,641)

(68,470)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

04/30/2000

 

04/30/2000

30-Apr

Cash

0

82,653

0

82,653

 

Futures margin account 

1,250

52,250

1,473

51,471

 

Other comprehensive income (OCI)

(1,500)

(67,000)

(1,794)

(65,975)

 

Interest expense (revenue)

250

(67,903)

321

(68,149)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

05/31/2000

 

05/31/2000

31-May

Cash

0

82,653

0

82,653

 

Futures margin account 

1,250

53,500

1,496

52,967

 

Other comprehensive income (OCI)

(1,500)

(68,500)

(1,821)

(67,796)

 

Interest expense (revenue)

250

(67,653)

325

(67,824)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

06/17/2000

`

06/17/2000

17-Jun

Cash

28,750

111,403

28,750

111,403

 

Futures margin account 

(26,750)

26,750

(26,611)

26,356

 

Other comprehensive income (OCI)

32,250

(36,250)

32,090

(35,706)

 

Interest expense (revenue)

(34,250)

(101,903)

(34,229)

(102,053)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

 

 

 

17-Jun

Cash

200,000

311,403

200,000

311,403

 

Interest expense (revenue)

(200,000)

(301,903)

(200,000)

(301,903)

 

-To record interest on note receivable

 

 

 

 

 

 

 

 

 

 

17-Jun

Cash

(177,450)

133,953

(177,450)

133,953

 

Interest expense (revenue)

177,450

(124,453)

177,450

(124,453)

 

-To record interest on note payable

 

 

 

 

 

 

 

06/30/2000

`

06/30/2000

30-Jun

Cash

0

133,953

0

133,953

 

Futures margin account 

750

27,500

796

27,152

 

Other comprehensive income (OCI)

(500)

(36,750)

(570)

(36,276)

 

Interest expense (revenue)

(250)

(124,703)

(376)

(124,829)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

07/31/2000

`

07/31/2000

31-Jul

Cash

0

133,953

0

133,953

 

Futures margin account 

500

28,000

632

27,784

 

Other comprehensive income (OCI)

(750)

(37,500)

(929)

(37,205)

 

Interest expense (revenue)

250

(124,453)

297

(124,532)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

08/31/2000

`

08/31/2000

31-Aug

Cash

0

133,953

0

133,953

 

Futures margin account 

750

28,750

887

28,671

 

Other comprehensive income (OCI)

(500)

(38,000)

(689)

(37,894)

 

Interest expense (revenue)

(250)

(124,703)

(198)

(124,730)

 

- To adjust futures contracts to fair value. 

 

 

 

 

 

 

 

09/17/2000

`

09/17/2000

17-Sep

Cash

29,000

162,953

29,000

162,953

 

Futures margin account 

(28,750)

0

(28,750)

0

 

Other comprehensive income (OCI)

38,000

0

38,000

0

 

Interest expense (revenue)

(38,250)

(162,953)

(38,250)

(162,953)

 

-To adjust futures contracts to fair value

 

 

 

 

 

 

 

09/17/2000

`

09/17/2000

17-Sep

Cash

200,000

362,953

200,000

362,953

 

Interest expense (revenue)

(200,000)

(362,953)

(200,000)

(362,953)

 

-To record interest on note receivable

 

 

 

 

 

 

 

09/17/2000

`

09/17/2000

17-Sep

Cash

(182,000)

180,953

(182,000)

180,953

 

Interest expense (revenue)

182,000

(180,953)

182,000

(180,953)

 

-To record interest on note payable

 

 

 

 

 

 

 

09/30/2000

`

09/30/2000

30-Sep

Cash

0

180,953

0

180,953

 

Futures margin account 

0

0

0

0

 

Other comprehensive income (OCI)

0

0

0

0

 

Interest expense (revenue)

0

(180,953)

0

(180,953)

 

-To adjust futures contracts to fair value

 

 

 

 

 

 

 

10/31/2000

`

10/31/2000

31-Oct

Cash

0

180,953

0

180,953

 

Futures margin account 

0

0

0

0

 

Other comprehensive income (OCI)

0

0

0

0

 

Interest expense (revenue)

0

(180,953)

0

(180,953)

 

-To adjust futures contracts to fair value

 

 

 

 

 

 

 

11/30/2000

`

11/30/2000

30-Nov

Cash

0

180,953

0

180,953

 

Futures margin account 

0

0

0

0

 

Other comprehensive income (OCI)

0

0

0

0

 

Interest expense (revenue)

0

(180,953)

0

(180,953)

 

-To adjust futures contracts to fair value.

 

 

 

 

 

 

 

12/17/2000

`

12/17/2000

17-Dec

Cash

0

180,953

0

180,953

 

Futures margin account 

0

0

0

0

 

Other comprehensive income (OCI)

0

0

0

0

 

Interest expense (revenue)

0

(180,953)

0

(180,953)

 

-To adjust futures contracts to fair value.

 

 

 

 

 

 

 

12/17/2000

`

12/17/2000

17-Dec

Cash

200,000

380,953

200,000

380,953

 

Interest expense (revenue)

(200,000)

(380,953)

(200,000)

(380,953)

 

-To record interest on note receivable

 

 

0

0

 

 

 

12/17/2000

`

12/17/2000

17-Dec

Cash

(184,781)

196,172

(184,781)

196,172

 

Interest expense (revenue)

184,781

(196,172)

184,781

(196,172)

 

-To record interest on note payable

 

 

 

 

 

 

 

12/17/2000

`

12/17/2000

17-Dec

Cash

10,000,000

10,196,172

10,000,000

10,196,172

 

Notes receivable

(10,000,000)

0

(10,000,000)

0

 

-To record the payoff of the note receivable

 

 

 

 

 

 

 

12/17/2000

`

12/17/2000

17-Dec

Cash

(10,000,000)

196,172

(10,000,000)

196,172

 

Notes payable

10,000,000

0

10,000,000

0

 

-To record the payoff of the note payable

 

 

 

 

 

 

 

 

 

 

31-Dec

Interest expense (revenue)

196,172

0

196,172

0

 

Retained earnings

(196,172)

(196,172)

(196,172)

(196,172)

 

-To close the books

 

 

 

 

 

 

 

 

 

 

 

Summary

SUMMARY of MarginWHEW Bank

Dollars Dollars Percent
Interest revenue for the year

$800,000

8.0000%

Less interest expense if not hedged:

3/17/00

($145,347)

6/17/00

(177,450)

9/17/00

(182,000)

12/17/00

(184,781)

(689,578)

-6.8958%

Net income if interest expense is not hedged

$110,422

1.1042%

Add futures hedging gains and losses

3/17/00

$28,500

6/17/00

  28,750

9/17/00

  28,500

12/17/00

          0

  85,750

0.8575%

Net income if interest expense is hedged

$196,172

1.9617%

Comment:  Unlike option contract hedges that only lock in a net income floor or cap, the futures contract hedges in this case lock in a fixed net income of amount of $196,172.