Candra Christensen Cuisine operates a chain of fine seafood restaurants. The company makes very detailed long-term plans.

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Candra Christensen Cuisine operates a chain of fine seafood restaurants. The company makes very detailed long-term plans. On October 1, 2013, Candra Christensen determined that it would need to purchase 800,000 pounds of New England lobster on January 1, 2015. Because of the fluctuations in the price of New England lobster, on October 1 the company negotiated a special forward contract with Lisa Investment Bank for Candra Christensen to purchase 800,000 pounds of New England lobster on January 1, 2015, at a price of $9,600,000. The price of New England lobster was $12 per pound on October 1. Lisa Investment Bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are predicting a drop in worldwide lobster prices between October 1, 2013, and January 1, 2015.
On December 31, 2013, the price of a pound of New England lobster is $15. On December 31, 2014, the price of a pound of New England lobster is $9. The appropriate discount rate throughout this period is 10%.
Instructions:
Make all journal entries necessary on Candra Christensen's books in 2013, 2014, and 2015 to record the forward contract and the purchase of the lobster. For purposes of estimating future settlement payments under the forward contract, assume that the current price of lobster is the best forecast of the future price.
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Intermediate Accounting

ISBN: 978-0538479738

18th edition

Authors: Earl K. Stice, James D. Stice

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