Easy Corp. uses silver in the manufacture of its products. Easy Corp. anticipates that it will need to purchase 1,000 ounces of silver in November 2000, for earrings that will be shipped for the holiday shopping season. But if the price of silver increases. Easy Corp's cost to produce its earrings will increase, which would reduce its profit To hedge the risk of increased silver prices, on May 1, 2000, Easy Corp. enters into a silver futures contract and designs this futures contract as a cash flow hedge of the anticipated silver purchase. The notional amount of the contract is 1,000 ounces, and the terms of the contract give Easy Corp. the right and the obligation to purchase gold at a price of $40,000 per ounce. The price will be good until the contract expires on November 30, 2000. Assume the following data right respect to the price of the silver inventory purchase Date Spot price for November delivery May 1, 2000 $40,000 per ounce July 31, 2000 $41,000 per ounce October 31, 2000 $42,500 per ounce Instruction: Determine the amount of Unrealized holding gain or loss - Equity for the following transactions (a) May 1, 2000 - Inception of the futures contract. Ans 1 (b) July 31,2000 - Easy Corp prepares financial statement. Ans. (c) October 31, 2000-Easy Corp prepares financial statement. Ans (d) December 11, 2000 - Easy Corp sells earrings containing 1.000 ounces silver purchased at 42 500 dollars per ounce in November 2000 for 50.000.000 dollars. The cost of finished goods inventory is 525.000.000. Ans Fill in Blanks (20 Points) (Please fill in the answers in the order of the questions) Easy Corp. uses silver in the manufacture of its products. Easy Corp. anticipates that it will need to purchase 1,000 ounces of silver in November 2000, for earrings that will be shipped for the holiday shopping season. But if the price of silver increases. Easy Corp's cost to produce its earrings will increase, which would reduce its profit To hedge the risk of increased silver prices, on May 1, 2000, Easy Corp. enters into a silver futures contract and designs this futures contract as a cash flow hedge of the anticipated silver purchase. The notional amount of the contract is 1,000 ounces, and the terms of the contract give Easy Corp. the right and the obligation to purchase gold at a price of $40,000 per ounce. The price will be good until the contract expires on November 30, 2000. Assume the following data right respect to the price of the silver inventory purchase Date Spot price for November delivery May 1, 2000 $40,000 per ounce July 31, 2000 $41,000 per ounce October 31, 2000 $42,500 per ounce Instruction: Determine the amount of Unrealized holding gain or loss - Equity for the following transactions (a) May 1, 2000 - Inception of the futures contract. Ans 1 (b) July 31,2000 - Easy Corp prepares financial statement. Ans. (c) October 31, 2000-Easy Corp prepares financial statement. Ans (d) December 11, 2000 - Easy Corp sells earrings containing 1.000 ounces silver purchased at 42 500 dollars per ounce in November 2000 for 50.000.000 dollars. The cost of finished goods inventory is 525.000.000. Ans Fill in Blanks (20 Points) (Please fill in the answers in the order of the questions)
