Question
Crane Corporation was a small company in the energy sector. Crane operated by purchasing natural gas from the companies that extracted it, then selling the
Crane Corporation was a small company in the energy sector. Crane operated by purchasing natural gas from the companies that extracted it, then selling the natural gas to refineries to be processed. Because the price for natural gas fluctuated, Crane often entered into future contracts as a way of managing the risk. On May 15, 2020, Crane entered into a future contract to sell 30,000 cubic metres of natural gas at a price of $4.20 per cubic metre (which was the market value on May 15). The broker with whom Crane arranged the contract required a 18% deposit, which Crane paid in cash. On June 30, Cranes year-end, the price of natural gas was $4.75 per cubic metre. On July 1, Crane closed out the contract at the same natural gas price, settling net without delivering the gas. Prepare the journal entries to record the futures contract.
(To record the payment of the deposit.)
(To record loss on derivative.)
(To record additional deposit.)
(To close out derivative contract.)
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