Question
On October 15, 2017, Oil Products Co. purchased 4000 barrels of fuel oil with a cost of $240,000. Oil Products is holding this inventory in
On October 15, 2017, Oil Products Co. purchased 4000 barrels of fuel oil with a cost of $240,000. Oil Products is holding this inventory in anticipation of the winter 2018 heatin gseason. Oil Products accounts fo rits inventory at the lower-of-FIFO-cost-or-net realizable value. To hedge against potential declines in the value of the inventory, Oil Products also purhcased a put option on the fuel oil. Oil Products paid an option premium of $300f for th eput option, which gfives Oil Products the option to sell 4000 barrels of fuel oil at a strike price of $60 per gallon. The option expires on March 1, 2018f. The following data are available with respect ot the values of the fuel of inventory and the put option.
Date Market Price of Fuel Oil Time Value of Put Option
Oct. 31 2017 | $58 per gallon | $175 |
Nov. 30 2017 | $57 per gallon | $105 |
Dec. 31 2017 | $54 per gallon | $40 |
a. Prepare the journal entries of Oil products for the following dates
1. october 15,2017- Oil Producs purchases fuel oil and the put option on fuel oil.
2. october 31,2017- Oil Products prepares financial statments
3. november 30, 2017- Oil Products prepares financial statments
4. december 31, 2017- Oil Products prepares financial statments
b. indicate the amount(s) reported on teh balance sheet and income statement related to the fuel oil inventory and the put option on November 30, 2017.
c. indicate the amount(s) freported on the balance sheet and income statement related to the fuel oil and the put option on December 31, 2017.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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