Working Paper 286
Bob Jensen at Trinity University

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.

Summary

 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.