On January 1 , a company holds an inventory of a commodity carried at a cost of  $100,000. The commodity's current market value is$110,000. To guard against a potential decline in the value of that inventory, the company purchases put options with a total strike price of  $110,000  exercisable in 3 months, paving a total of$500for the options. The puts qualify as a fair value hedge of the inventory. All income effects of the inventory and the hedge are reported in cost of goods sold. On March 25, the commodity's market price is$108,000and the company closes the hedge by selling the put options for$2,200. The company sells its inventory later in the year. The company has a December 31 year-end. What is the carrying value of inventory as of March 25?  

a. $108,000 

b. $100000 

c. $98.000

d. $110,000

Answer rating: 100% (QA)

Step 1 Hedge accounting for derivative instruments Derivative instruments work as hedging instrument... View the full answer