On 1/1/x4, TrueJet Airlines and Supplier Co. signed a purchase agreement whereby TrueJet agreed to purchase 20,000
Question:
On 1/1/x4, TrueJet Airlines and Supplier Co. signed a purchase agreement whereby TrueJet agreed to purchase 20,000 gallons of jet fuel from Supplier Co. for $4.90 per gallon on 12/31/x6. The contract stipulates that, at settlement on 12/31/x6, TrueJet can choose to accept settlement in cash of the difference between the then-current market price and the contract price for the jet fuel, or TrueJet can accept physical delivery of the jet fuel. At the time the contract was signed, jet fuel was selling for $4.10 per gallon. On 12/31/x4, jet fuel was selling for $5.05 per gallon. As of 12/31/x5, jet fuel was selling for $4.85 per gallon.
Required:
What entries should TrueJet record as of:
1 - contract inception?
2 - then at 12/31/x4?
3 - then at 12/31x5?
Where in the codification may I find the guidance relating to this scenario?
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin