Question
On October 15, 2025, Sunland Co. purchased 3,600 barrels of fuel oil with a cost of $223,200 ($62 per barrel). Sunland is holding this inventory
On October 15, 2025, Sunland Co. purchased 3,600 barrels of fuel oil with a cost of $223,200 ($62 per barrel). Sunland is holding this inventory in anticipation of the winter 2026 heating season. Sunland accounts for its inventory at the lower of FIFO cost or net realizable value. To hedge against potential declines in the value of the inventory. Sunland also purchased a put option on the fuel oil. Sunland paid an option premium of $270 for the put option, which gives Sunland the option to sell 3,600 barrels of fuel oil at a strike price of $62 per gallon. The option expires on March 1, 2026. 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 Out Option
October 31, 2025 $60 per gallon $161
November 30, 2025 59 per gallon 103
December 31, 2025 56 per gallon. 41
Prepare the journal entries of Sunland purchases fuel oil and the put option on fuel oil.
- October 15, 2025- Sunland purchases fuel oil and the put option on fuel oil.
- October 31, 2025- Sunland prepares financial statements.
- November 30, 2025- Sunland prepares financial statements.
- December 31, 2025- Sunland prepares financial statements.
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