Question
On January 1, 2020, Cullumber Inc. agrees to buy 3 kg of gold at $33,000 per kilogram from Golden Corp on April 1, 2020, but
On January 1, 2020, Cullumber Inc. agrees to buy 3 kg of gold at $33,000 per kilogram from Golden Corp on April 1, 2020, but does not intend to take delivery of the gold. On the day that the contract was entered into, the fair value of this forward contract was zero. The fair value of the forward subsequently fluctuated as follows:
| Date | Fair Value of Forward Contract | |
|---|---|---|
| January 20, 2020 | $453 | |
| February 6, 2020 | $133 | |
| February 28, 2020 | $378 | |
| March 14, 2020 | $750 |
On the settlement date, the spot price of gold is $34,000 per kilogram. Assume that Cullumber complies with IFRS.
Questions:
a) Prepare the journal entry for the day the forward contract was signed.
b )prepare the journal entries to recognize the changes in the fair value of the forward contract.
c) Prepare the journal entry that would be required if Cullumber settled the contract on a net basis on April 1, 2020
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Cost Accounting A Managerial Emphasis
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
15th edition
978-0133428704
