ase $21-5$c: Accounting for Emissions Allowances

Page $2$

ave a surplus of EAs because of the success of a new low$-$emission hydroelectric plant ctivated in $20$X$8.$ On September $1,20$X$8,$ EZGreen agrees to sell $100,000$ EAs to the company for $$100$ million. After the transaction is completed, the Company holds $4\mathrm{.}1$ nillion EAs for the $20$X$8$ year.

By November $30,20$X$8,$ the Company projects that it will emit only $4\mathrm{.}025$ million metric ons of $C{O}_2$ for the $20$X$8$ year and decides to sell $50,000208$ vintage EAs. Competitor Kohlberner Electric $($KBE$)$ needs $20$X$8$ vintage EAs but expects that it will have a surplus of the $20$ Y$0$ vintage. Rather than pay the Company cash, KBE proposes a swap with the Company whereby the Company receives $20$ Y$0$ vintage EAs in retum for transferring $20x8$ vintage EAs to KBE.

On November $30,20x8,$ the $20Y0$ vintage EAs trade for $$800$ per EA$,$ while $20x8$ vintage EAs trade for $$1,200$ per EA$.$ Thus, KBE and the Company agree to swap $75,000$ of KBE's $20Y0$ vintage EAs in exchange for $50,000$ of the Company's $208$ vintage EAs. After the transaction is completed, the Company holds $4\mathrm{.}05$ million $208$ vintage EAs, $3\mathrm{.}96$ million $20x9$ vintage EAs, and $3\mathrm{.}995$ million $20Y0$ vintage EAs.

Required:

On July $1,20$X$8,$ how should the Company classify and account for its receipt of EAs from the Program?

How should the Company account for its purchase of $100,000$ EAs from EZGreen on September $1,20$X$8?$

On November $30,20$X$8,$ how should the Company account for the swap of $50,00020x8$ vintage EAs transferred to competitor KBE in return for $75,00020Y0$ vintage EAs received?