Problem 17-16 (Part Level Submission) Wildhorse Jewelry Co. uses gold in the manufacture of its products. Wildhorse anticipates that it will need to purchase 460 ounces of gold in October 2020, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, Wildhorse's cost to produce its jewelry will increase, which would reduce its profit margins. To hedge the risk of increased gold prices, on April 1, 2020, Wildhorse enters into a gold futures contract and designates this futures contract as a cash flow hedge of the anticipated gold purchase. The notional amount of the contract is 460 ounces, and the terms of the contract give Wildhorse the right and the obligation to purchase gold at a price of $290 per ounce. The price will be good until the contract expires on October 31, 2020. Assume the following data with respect to the price of the futures contract and the gold inventory purchase: Spot Price for October Delivery April 1, 2020 $290 per ounce June 30, 2020 300 per ounce September 30, 2020 306 per ounce Date *(a) to (e) Prepare the journal entries for the following transactions. (a) (b) (c) (d) (e) April 1, 2020-Inception of the futures contract, no premium paid. June 30, 2020-Wildhorse Co. prepares financial statements. September 30, 2020-Wildhorse Co. prepares financial statements. October 10, 2020-Wildhorse Co. purchases 460 ounces of gold at $306 per ounce and settles the futures contract. December 20, 2020-Wildhorse sells jewelry containing gold purchased in October 2020 for $326,800. The cost of the finished goods inventory is $216,700. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit No. (a) (6) (d) (To record purchase.) (To record settlement of futures contract.) (e) (To record sales.) (To record cost of goods sold.) (To record change in earnings.) Problem 17-16 (Part Level Submission) Wildhorse Jewelry Co. uses gold in the manufacture of its products. Wildhorse anticipates that it will need to purchase 460 ounces of gold in October 2020, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, Wildhorse's cost to produce its jewelry will increase, which would reduce its profit margins. To hedge the risk of increased gold prices, on April 1, 2020, Wildhorse enters into a gold futures contract and designates this futures contract as a cash flow hedge of the anticipated gold purchase. The notional amount of the contract is 460 ounces, and the terms of the contract give Wildhorse the right and the obligation to purchase gold at a price of $290 per ounce. The price will be good until the contract expires on October 31, 2020. Assume the following data with respect to the price of the futures contract and the gold inventory purchase: Spot Price for October Delivery April 1, 2020 $290 per ounce June 30, 2020 300 per ounce September 30, 2020 306 per ounce Date *(a) to (e) Prepare the journal entries for the following transactions. (a) (b) (c) (d) (e) April 1, 2020-Inception of the futures contract, no premium paid. June 30, 2020-Wildhorse Co. prepares financial statements. September 30, 2020-Wildhorse Co. prepares financial statements. October 10, 2020-Wildhorse Co. purchases 460 ounces of gold at $306 per ounce and settles the futures contract. December 20, 2020-Wildhorse sells jewelry containing gold purchased in October 2020 for $326,800. The cost of the finished goods inventory is $216,700. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit No. (a) (6) (d) (To record purchase.) (To record settlement of futures contract.) (e) (To record sales.) (To record cost of goods sold.) (To record change in earnings.)
