E 13-1

Hedge of an anticipated purchase

On November 1, 2016, Puan Corporation enters into a 90-day forward contract with a wheat speculator to purchase 300,000 bushels of wheat at $4.30. The contract is to be settled net. Puan enters the contract in order to hedge an anticipated wheat purchase. The contract is settled on January 31, 2017. Use the following information to answer the questions that follow:

November 1, 2016 December 31, 2016 January 31, 2017

90-day forward rate

$4.30 4.25 4.50

Spot rate

$4.20 4.50

Assume an appropriate interest rate of 8 percent and that the hedge is an effective hedge.

REQUIRED

1. Prepare the required journal entries to account for this hedge situation and the subsequent wheat purchase on November 1, 2016; December 31, 2016; and January 31, 2017.

2. Assume that the wheat is subsequently sold on July 1, 2017, at $5 per bushel. What journal entries will Puan make on that date?

E 13-1 Hedge of an anticipated purchase On November 1, 2016, Puan Corporation enters into a 90-day forward contract with a wheat speculator to purchase 300,000 bushels of wheat at $4.30. The contract is to be settled net. Puan enters the contract in order to hedge an anticipated wheat purchase. The contract is settled on January 31, 2017. Use the following information to answer the questions that follow: 90-day forward rate Spot rate $4.20 November 1, 2016 December 31, 2016 January 31, 2017 $4.30 4.25 4.50 4.50 Assume an appropriate interest rate of 8 percent and that the hedge is an effective hedge. REQUIRED 1. Prepare the required journal entries to account for this hedge situation and the subsequent wheat purchase on November 1, 2016; December 31, 2016; and January 31, 2017. 2. Assume that the wheat is subsequently sold on July 1, 2017, at $5 per bushel. What journal entries will Puan make on that date? E 13-1 Hedge of an anticipated purchase On November 1, 2016, Puan Corporation enters into a 90-day forward contract with a wheat speculator to purchase 300,000 bushels of wheat at $4.30. The contract is to be settled net. Puan enters the contract in order to hedge an anticipated wheat purchase. The contract is settled on January 31, 2017. Use the following information to answer the questions that follow: 90-day forward rate Spot rate $4.20 November 1, 2016 December 31, 2016 January 31, 2017 $4.30 4.25 4.50 4.50 Assume an appropriate interest rate of 8 percent and that the hedge is an effective hedge. REQUIRED 1. Prepare the required journal entries to account for this hedge situation and the subsequent wheat purchase on November 1, 2016; December 31, 2016; and January 31, 2017. 2. Assume that the wheat is subsequently sold on July 1, 2017, at $5 per bushel. What journal entries will Puan make on that date