Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 2 Incomplete answer Marked out of 33.33 P Flag question Use of futures contracts to hedge a forecasted transaction-cash flow hedge As of January,
Question 2 Incomplete answer Marked out of 33.33 P Flag question Use of futures contracts to hedge a forecasted transaction-cash flow hedge As of January, our company plans to purchase 300,000 lb. of copper on May 31 at the prevailing spot rate. To hedge this forecasted transaction, we purchase May futures contracts in January for 300,000 lb. of copper at the futures price of $2.68/lb. On May 31, we close out our futures contracts. We also purchase 300,000 lb. of copper at $2.94/lb. on that date. Finally, we sell the inventory in June for $3.16/1b. Our company operates on a calendar year and issues financial statements quarterly. Following are futures and spot prices for the relevant dates: Date Spot Futures January $2.54 2.68 March 31 $2.62 $2.77 May 31 $2.94 n/a Required Prepare the journal entries to record the following: a. Purchase of copper futures contract in January b. Adjusting entry at March 31 c. Purchase of copper on May 31 d. Sale of copper on June 1 Note: If no entry is required, select "No entry required" for both the debit and credit account titles. General Journal Description Debit Credit January Date 0 0 0 0 March 31 0 0 0 0 May 31 0 0 0 0 To record inventory purchase May 31 0 0 0 0 Other comprehensive income 0 0 Date Description Debit Credit January 0 0 0 0 March 31 0 0 0 0 May 31 a 0 0 0 0 To record inventory purchase May 31 0 0 0 0 0 0 Other comprehensive income To close out futures contract June 1 Cash 0 0 0 0 Sales 0 0 0 0 To record the sale of copper June 1 0 0 0 0 To recognize deferred gain Please answer all parts of the question. Previous A Save Answers Next
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