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On September 1 , 2 0 X 1 , Bauer Inc. has 1 0 , 0 0 0 ounces of silver, with an average cost
On September X Bauer Inc. has ounces of silver, with an average cost of $ per ounce, in inventory. The spot price for silver is $ per ounce. Bauer decides to retain the inventory until the beginning of January X hoping that the price increases to $ per ounce. To hedge its position, Bauer sells future contracts to sell ounces of silver at $ per ounce on January X The market spot rates and future prices for silver are as follows:
Spot Price January X Future Price
September X $ $
December X $ $
January X $ $
What entry does Bauer prepare on September X
Multiple Choice
Derivative Future Contract
Inventory
Derivative Future Contract
Gain on hedge activity
Derivative Future Contract
Cash
No entry is needed.
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