Industrial Plating Corporation coats manufactured parts with a variety of coatings such as Teflon, gold, and silver.
Question:
Industrial Plating Corporation coats manufactured parts with a variety of coatings such as Teflon, gold, and silver. The company intends to purchase 100,000 troy ounces of silver in September. The purchase is highly probable, and the company has become concerned that the prices of silver may increase, and, therefore, the forecasted purchase will become even more expensive. In order to reduce the exposure to rising silver prices, on July 10 the company purchased 20 September call (buy) options on silver. Each option is for 5,000 troy ounces and has a strike price of $5.00 per troy ounce. The company excludes from hedge effectiveness changes in the time value of the option. Spot prices and option value per troy ounce of silver are as follows:
On September 10, the company settled the option and on September 15 purchased 100,000 troy ounces of silver on account at $5.33 per ounce. The silver was used in the company's production process over the next three months. In September and October, plating services were provided as follows:
Required
Prepare all necessary entries to account for the above activities through October. Assume that the hedge satisfies all necessary criteria for special hedge accounting.
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Advanced Accounting
ISBN: 978-1305084858
12th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng