Refer to Examples 15 and 19 in the chapter. Delmar holds 10,000 gallons of whiskey in inventory
Question:
a. Give the journal entry, if any, that Delmar would make on October 31, 2013, when it acquires the forward commodity contract.
b. On December 31, 2013, the end of the accounting period for Delmar, the forward price of whiskey for March 31, 2014, delivery is $310 per gallon. Give the journal entry to record the change in the value of the forward commodity price contract. Ignore the discounting of cash flows in this part and for the remainder of the problem.
c. Give the journal entry, if any, that Delmar must make on December 31, 2013, for the decline in value of the whiskey inventory.
d. On March 31, 2014, the price of whiskey declines to $270 per gallon. Give the journal entry that Delmar must make to remeasure the forward contract.
e. Give the entry, if any, that Delmar must make on March 31, 2014, to reflect the decline in value of the inventory.
f. Give the journal entry that Delmar would make on March 31, 2014, to settle the forward contract.
g. Assume that Delmar sells the whiskey on March 31, 2014, for $270 a gallon. Give the journal entries to record the sale and recognize cost of goods sold.
h. How would the entries in parts b through g differ if Delmar had chosen to designate the forward commodity contract as a fair value hedge instead of a cash flow hedge?
i. Suggest a scenario that would justify the firm treating the forward commodity contract as a fair value hedge, and a scenario that would justify treating it as a cash flow hedge.
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Related Book For
Financial Accounting An Introduction to Concepts, Methods and Uses
ISBN: 978-1133591023
14th edition
Authors: Roman L. Weil, Katherine Schipper, Jennifer Francis
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