E 13-4

Hedging of an existing asset

Pattay Corporation purchases 200,000 pounds of copper on September 1, 2016, at $2 per pound. In order to hedge the value of the copper, on October 1, 2016, Pattay enters into a forward contract to sell the 200,000 pounds on January 31, 2017, at $2.3 per pound. The contract is settled net. Assume an appropriate interest rate of 8 percent. Sales price at each of the corresponding dates is given below:

Copper price

October 1, 2016 --> $1.8 December 31, 2016 --> $2.8

January 31, 2017 --> $2.5

R E Q U I R E D : Prepare the journal entries to record the transactions at each of the corresponding dates.

E 13-4 Hedging of an existing asset Pattay Corporation purchases 200,000 pounds of copper on September 1, 2016, at $2 per pound. In order to hedge the value of the copper, on October 1, 2016, Pattay enters into a forward contract to sell the 200,000 pounds on January 31, 2017, at $2.3 per pound. The contract is settled net. Assume an appropriate interest rate of 8 percent. Sales price at each of the corresponding dates is given below: 467 Accounting for Derivatives and Hedging Activities Copper price $1.8 $2.8 $2.5 October 1, 2016 December 31, 2016 January 31, 2017 REQUIRED: Prepare the journal entries to record the transactions at each of the corresponding dates E 13-4 Hedging of an existing asset Pattay Corporation purchases 200,000 pounds of copper on September 1, 2016, at $2 per pound. In order to hedge the value of the copper, on October 1, 2016, Pattay enters into a forward contract to sell the 200,000 pounds on January 31, 2017, at $2.3 per pound. The contract is settled net. Assume an appropriate interest rate of 8 percent. Sales price at each of the corresponding dates is given below: 467 Accounting for Derivatives and Hedging Activities Copper price $1.8 $2.8 $2.5 October 1, 2016 December 31, 2016 January 31, 2017 REQUIRED: Prepare the journal entries to record the transactions at each of the corresponding dates