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On October 1 5 , 2 0 2 5 , Oil Products Co . purchased 4 , 4 0 0 barrels offuel oil with a
On October Oil Products Co purchased barrels offuel oil with a cost of $$ per barrel Oil Products is holding this inventory in anticipation of the winter heating season. Oil Products accounts for its inventory at the lowerofFIFOcostornet realizable value. To hedge against potential declines in the value of the inventory, Oil Products also purchased a put option on the fuel oil. Oil Products paid an option premium of $ for the put option, which gives Oil Products the option to sell barrels of fuel oil at a strike price of $ per gallon. The option expires on March The following data are available with respect to the values of the fuel of inventory and the put option.
Date
Market Price of Fuel Oil
Time Value of Put Option
October
$ per gallon
$
November
per gallon
December
per gallon
Instructions
Prepare the journal entries of Oil Products for the following dates.
October Oil Products purchases fuel oil and the put option on fuel oil.
October Oil Products prepares financial statements.
November Oil Products prepares financial statements.
December Oil Products prepares financial statements.
Indicate the amounts reported on the balance sheet and income statement related to the fuel oil inventory and the put option on November
Indicate the amounts reported on the balance sheet and income statement related to the fuel oil and the put option on December
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