Exhibit 4
MarginOOPS 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 |
0.00 % APR |
Discounting at |
6.00% APR |
||
|
|
Debit |
|
Debit |
|
Date |
MarginOOPS
Bank Accounts |
(Credit) |
Balance |
(Credit) |
Balance |
1999 |
Assumed
FAS 133 discount rate = |
0.000000% |
0.000000% |
0.016438% |
0.016438% |
17-Jun |
Cash |
25,000,000
|
25,000,000
|
25,000,000
|
25,000,000
|
|
Notes
payable |
(25,000,000) |
(25,000,000) |
(25,000,000) |
(25,000,000) |
|
-To
record borrowing for one year |
|
|
|
|
|
|
|
|
|
|
17-Jun |
Cash |
(25,000,000) |
0
|
(25,000,000) |
0
|
|
Notes
receivable |
25,000,000
|
0
|
25,000,000
|
0
|
|
-To
record lending for one year |
|
|
|
|
|
|
|
|
|
|
17-Jun |
Cash |
(500) |
(500) |
(500) |
(500) |
|
Futures
margin account |
500
|
500
|
500
|
500
|
|
-To
record margin account |
|
|
|
|
|
|
|
06/30/99 |
|
06/30/1999 |
30-Jun |
Cash |
(7,500) |
(8,000) |
(7,500) |
(8,000) |
|
Futures
margin account |
0
|
500
|
0
|
500
|
|
Other
comprehensive income (OCI) |
3,750
|
3,750
|
3,647
|
3,647
|
|
Interest
expense (revenue) |
3,750
|
3,750
|
3,647
|
3,647
|
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
07/31/99 |
|
07/31/1999 |
31-Jul |
Cash |
(12,500) |
(20,500) |
(12,500) |
(20,500) |
|
Futures
margin account |
0
|
500
|
0
|
500
|
|
Other
comprehensive income (OCI) |
11,250
|
15,000
|
11,016
|
14,663
|
|
Interest
expense (revenue) |
1,250
|
5,000
|
1,231
|
4,878
|
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
08/31/99 |
|
08/31/1999 |
31-Aug |
Cash |
(16,875) |
(37,375) |
(16,875) |
(37,375) |
|
Futures
margin account |
0
|
500
|
0
|
500
|
|
Other
comprehensive income (OCI) |
15,000
|
30,000
|
14,812
|
29,475
|
|
Interest
expense (revenue) |
1,875
|
6,875
|
1,877
|
6,755
|
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
09/17/99 |
|
09/17/1999 |
17-Sep |
Cash |
(5,000) |
(42,375) |
(5,000) |
(42,375) |
|
Futures
margin account |
0
|
500
|
0
|
500
|
|
Other
comprehensive income (OCI) |
(8,750) |
21,250
|
(8,698) |
20,777
|
|
Interest
expense (revenue) |
13,750
|
20,625
|
14,343
|
21,098
|
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
|
|
|
17-Sep |
Cash |
500,000
|
457,625
|
500,000
|
457,625
|
|
Interest
expense (revenue) |
(500,000) |
(479,375) |
(500,000) |
(479,375) |
|
-To
record interest on note receivable |
|
|
|
|
|
|
|
|
|
|
17-Sep |
Cash |
(339,986) |
117,639
|
(339,986) |
117,639
|
|
Interest
expense (revenue) |
339,986
|
(139,389) |
339,986
|
(139,389) |
|
-To
record interest on note payable |
|
|
|
|
|
|
|
09/30/1999 |
|
09/30/1999 |
30-Sep |
Cash |
0
|
117,639
|
0
|
117,639
|
|
Futures
margin account |
4,375
|
4,875
|
4,375
|
4,875
|
|
Other
comprehensive income (OCI) |
(35,000) |
(13,750) |
(34,250) |
(13,473) |
|
Interest
expense (revenue) |
(129,389) |
(108,764) |
(130,139) |
(109,041) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
10/31/1999 |
|
10/31/1999 |
31-Oct |
Cash |
0
|
117,639
|
0
|
117,639
|
|
Futures
margin account |
16,875
|
21,750
|
16,875
|
21,750
|
|
Other
comprehensive income (OCI) |
(13,750) |
(27,500) |
(13,610) |
(27,083) |
|
Interest
expense (revenue) |
(3,125) |
(111,889) |
(3,265) |
(112,306) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
11/30/1999 |
|
11/30/1999 |
30-Nov |
Cash |
0
|
117,639
|
0
|
117,639
|
|
Futures
margin account |
14,375
|
36,125
|
14,375
|
36,125
|
|
Other
comprehensive income (OCI) |
(20,000) |
(47,500) |
(19,929) |
(47,012) |
|
Interest
expense (revenue) |
5,625
|
(106,264) |
5,554
|
(106,752) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
12/17/1999 |
` |
12/17/1999 |
17-Dec |
Cash |
0
|
117,639
|
0
|
117,639
|
|
Futures
margin account |
9,375
|
45,500
|
9,375
|
45,500
|
|
Other
comprehensive income (OCI) |
11,875
|
(35,625) |
11,922
|
(35,090) |
|
Interest
expense (revenue) |
(21,250) |
(127,514) |
(21,297) |
(128,049) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
|
|
|
17-Dec |
Cash |
500,000
|
617,639
|
500,000
|
617,639
|
|
Interest
expense (revenue) |
(500,000) |
(627,514) |
(500,000) |
(627,514) |
|
-To
record interest on note receivable |
|
|
|
|
|
|
|
|
|
|
17-Dec |
Cash |
(329,243) |
288,396
|
(329,243) |
288,396
|
|
Interest
expense (revenue) |
329,243
|
(298,271) |
329,243
|
(298,271) |
|
-To
record interest on note payable |
|
|
|
|
|
|
|
12/31/1999 |
` |
12/31/1999 |
31-Dec |
Cash |
0
|
288,396
|
0
|
288,396
|
|
Futures
margin account |
(1,250) |
44,250
|
(1,250) |
44,250
|
|
Other
comprehensive income (OCI) |
6,875
|
(28,750) |
6,706
|
(28,384) |
|
Interest
expense (revenue) |
(5,625) |
(303,896) |
(5,991) |
(304,262) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
01/31/2000 |
` |
01/31/2000 |
31-Jan |
Cash |
0
|
288,396
|
0
|
288,396
|
|
Futures
margin account |
(1,875) |
42,375
|
(1,875) |
42,375
|
|
Other
comprehensive income (OCI) |
(2,500) |
(31,250) |
(2,626) |
(31,010) |
|
Interest
expense (revenue) |
4,375
|
(299,521) |
4,501
|
(299,761) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
02/29/2000 |
` |
02/29/2000 |
29-Feb |
Cash |
0
|
288,396
|
0
|
288,396
|
|
Futures
margin account |
(8,125) |
34,250
|
(8,125) |
34,250
|
|
Other
comprehensive income (OCI) |
7,500
|
(23,750) |
7,330
|
(23,680) |
|
Interest
expense (revenue) |
625
|
(298,896) |
795
|
(298,966) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
03/17/2000 |
` |
03/17/2000 |
17-Mar |
Cash |
24,250
|
312,646
|
24,250
|
312,646
|
|
Futures
margin account |
(34,250) |
0
|
(34,250) |
0
|
|
Other
comprehensive income (OCI) |
23,750
|
0
|
23,750
|
0
|
|
Interest
expense (revenue) |
(13,750) |
(312,646) |
(13,750) |
(312,646) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
03/17/2000 |
` |
03/17/2000 |
17-Mar |
Cash |
500,000
|
812,646
|
500,000
|
812,646
|
|
Interest
expense (revenue) |
(500,000) |
(812,646) |
(500,000) |
(812,646) |
|
-To
record interest on note receivable |
|
|
|
|
|
|
|
03/17/2000 |
` |
03/17/2000 |
17-Mar |
Cash |
(376,007) |
436,639
|
(376,007) |
436,639
|
|
Interest
expense (revenue) |
376,007
|
(436,639) |
376,007
|
(436,639) |
|
-To
record interest on note payable |
|
|
|
|
|
|
|
03/31/2000 |
` |
03/31/2000 |
31-Mar |
Cash |
0
|
436,639
|
0
|
436,639
|
|
Futures
margin account |
0
|
0
|
0
|
0
|
|
Other
comprehensive income (OCI) |
0
|
0
|
0
|
0
|
|
Interest
expense (revenue) |
0
|
(436,639) |
0
|
(436,639) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
04/30/2000 |
` |
04/30/2000 |
30-Apr |
Cash |
0
|
436,639
|
0
|
436,639
|
|
Futures
margin account |
0
|
0
|
0
|
0
|
|
Other
comprehensive income (OCI) |
0
|
0
|
0
|
0
|
|
Interest
expense (revenue) |
0
|
(436,639) |
0
|
(436,639) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
05/31/2000 |
` |
05/31/2000 |
31-May |
Cash |
0
|
436,639
|
0
|
436,639
|
|
Futures
margin account |
0
|
0
|
0
|
0
|
|
Other
comprehensive income (OCI) |
0
|
0
|
0
|
0
|
|
Interest
expense (revenue) |
0
|
(436,639) |
0
|
(436,639) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
06/17/2000 |
` |
06/17/2000 |
17-Jun |
Cash |
0
|
436,639
|
0
|
436,639
|
|
Futures
margin account |
0
|
0
|
0
|
0
|
|
Other
comprehensive income (OCI) |
0
|
0
|
0
|
0
|
|
Interest
expense (revenue) |
0
|
(436,639) |
0
|
(436,639) |
|
- To
adjust futures contracts to fair value. |
|
|
|
|
|
|
|
06/17/2000 |
` |
06/17/2000 |
17-Jun |
Cash |
500,000
|
936,639
|
500,000
|
936,639
|
|
Interest
expense (revenue) |
(500,000) |
(936,639) |
(500,000) |
(936,639) |
|
-To
record interest on note receivable |
|
|
0
|
0
|
|
|
|
06/17/2000 |
` |
06/17/2000 |
17-Jun |
Cash |
(340,618) |
596,021
|
(340,618) |
596,021
|
|
Interest
expense (revenue) |
340,618
|
(596,021) |
340,618
|
(596,021) |
|
-To
record interest on note payable |
|
|
|
|
|
|
|
06/17/2000 |
` |
06/17/2000 |
17-Jun |
Cash |
25,000,000
|
25,596,021
|
25,000,000
|
25,596,021
|
|
Notes
receivable |
(25,000,000) |
0
|
(25,000,000) |
0
|
|
-To
record the payoff of the note receivable |
|
|
|
|
|
|
|
06/17/2000 |
` |
06/17/2000 |
17-Jun |
Cash |
(25,000,000) |
596,021
|
(25,000,000) |
596,021
|
|
Notes
payable |
25,000,000
|
0
|
25,000,000
|
0
|
|
-To
record the payoff of the note payable |
|
|
|
|
|
|
|
|
|
|
31-Dec |
Interest
expense (revenue) |
596,021
|
0
|
596,021
|
0
|
|
Retained
earnings |
(596,021) |
(596,021) |
(596,021) |
(596,021) |
|
-To
close the books |
|
|
|
|
|
|
|
|
|
|
Summary of MarginOOPS Bank Transactions | ||||
Date | Dollars |
Dollars |
Percent |
|
Interest revenue for the year | $2,000,000 |
8.0000% |
||
Less interest expense if not hedged | 9/17/99 |
$339,986 |
||
12/17/99 |
$329.243 |
|||
3/17/00 |
$376,007 |
|||
6/17/00 |
$340,618 |
$1,385,854 |
-5.5434% |
|
Net income if interest expense is not hedged | $614,146 |
2.4566% |
||
Add (deduct) futures hedging gains and (losses) |
|
|
||
6/30/99 |
($ 7,500) |
|||
7/31/99 |
($12,500) |
|||
8/31/99 |
($16,875) |
|||
9/17/99 |
($5,000) |
|||
9/30/99 | $4,375 | |||
10/31/99 | $16,875 | |||
11/30/99 | $14,375 | |||
12/17/99 | $9,375 | |||
12/31/99 | ($1,250) | |||
01/31/00 |
($1,875) |
|||
02/29/00 |
($8,125) |
|||
03/17/00 | ($10,000) | ($18,125) | -0.0725% | |
Net income if interest expense is hedged | $596,021 |
2.3841% |
Calculation Verification
Spread Spread Note that the multiplication factor is $62,500 = (25
contracts)($2,500 notional).
Futures prices are taken from Exhibit 3.
($14,375) = (5.21-5.44)($62,500) loss on the September 1999 futures contracts
$10,000 = (5.95-5.79)($62,500) gain on the December 1999 futures contracts
($13,750) = (5.65-5.87)($62,500) loss on the March 2000 futures contracts
($18,125) = net "loss" on the futures contracts (which locked the hedged cost of the $25 note payable)
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 $596,021.