Question
On January 1 , a company holds an inventory of a commodity carried at $100,000. The commodity's current market value is $110,000. To guard against
On January 1 , a company holds an inventory of a commodity carried at $100,000. The commodity's current market value is $110,000. To guard against a potential decline in the value of that inventory, the company purchases put options with a total strike price of $110,000, exercisable in 3 months, paving a total of $500 for the options. The puts qualify as a fair value hedge of the inventory. All income effects of the inventory and the hedge are reported in the cost of goods sold. On March 25, the commodity's market price is $108,000, and the company closes the hedge by selling the put options for $2,200. The company sells its inventory later in the year. Year-end 12/31. What is COGS reported?
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