Question
Pearl Corporation was a small company in the energy sector. Pearl operated by purchasing natural gas from the companies that extracted it, then selling the
Pearl Corporation was a small company in the energy sector. Pearl operated by purchasing natural gas from the companies that extracted it, then selling the natural gas to refineries to be processed. Because the price for natural gas fluctuated, Pearl often entered into future contracts as a way of managing the risk. On May 15, 2020, Pearl entered into a future contract to sell 31,000 cubic metres of natural gas at a price of $4.50 per cubic metre (which was the market value on May 15). The broker with whom Pearl arranged the contract required a 16% deposit, which Pearl paid in cash. On June 30, Pearls year-end, the price of natural gas was $4.95 per cubic metre. On July 1, Pearl closed out the contract at the same natural gas price, settling net without delivering the gas. Prepare the journal entries to record the futures contract. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date | Account Titles and Explanation | Debit | Credit |
May 15June 30July 1 | |||
(To record the payment of the deposit.) | |||
May 15June 30July 1 | |||
(To record loss on derivative.) | |||
(To record additional deposit.) | |||
July 1 | |||
(To close out derivative contract.) |
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