Starco Corp. wishes to purchase 8,000 shares of Gertrom Ltd., a publicly traded company. Starco contracts...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Starco Corp. wishes to purchase 8,000 shares of Gertrom Ltd., a publicly traded company. Starco contracts to buy the shares from a related party, Unit Ltd., for $73 per share in 120 days' time. The fair value was $73 per share on this day. One month later, at year-end, the fair value of the Gertrom shares is $62 per share, and it is $68 per share at the end of 120 days. At that time, the shares are bought, and the contract is closed out. Required: 1. Is this a forward contract or a futures contract? Explain. 2. What risk is the company hedging? 3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity. Starco Corp. wishes to purchase 8,000 shares of Gertrom Ltd., a publicly traded company. Starco contracts to buy the shares from a related party, Unit Ltd., for $73 per share in 120 days' time. The fair value was $73 per share on this day. One month later, at year-end, the fair value of the Gertrom shares is $62 per share, and it is $68 per share at the end of 120 days. At that time, the shares are bought, and the contract is closed out. Required: 1. Is this a forward contract or a futures contract? Explain. 2. What risk is the company hedging? 3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity. Starco Corp. wishes to purchase 8,000 shares of Gertrom Ltd., a publicly traded company. Starco contracts to buy the shares from a related party, Unit Ltd., for $73 per share in 120 days' time. The fair value was $73 per share on this day. One month later, at year-end, the fair value of the Gertrom shares is $62 per share, and it is $68 per share at the end of 120 days. At that time, the shares are bought, and the contract is closed out. Required: 1. Is this a forward contract or a futures contract? Explain. 2. What risk is the company hedging? 3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity. Starco Corp. wishes to purchase 8,000 shares of Gertrom Ltd., a publicly traded company. Starco contracts to buy the shares from a related party, Unit Ltd., for $73 per share in 120 days' time. The fair value was $73 per share on this day. One month later, at year-end, the fair value of the Gertrom shares is $62 per share, and it is $68 per share at the end of 120 days. At that time, the shares are bought, and the contract is closed out. Required: 1. Is this a forward contract or a futures contract? Explain. 2. What risk is the company hedging? 3. Prepare journal entries to record the inception of the contract, the change in its fair value at year-end, and its maturity.
Expert Answer:
Answer rating: 100% (QA)
ANSWER 1 This is a forward contract The forward contract is an agreement in private that is generall... View the full answer
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-1119368458
7th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
Posted Date:
Students also viewed these accounting questions
-
The income statement for Whistler Ltd., a publicly traded company following ASPE, is presented here: WHISTLER LTD. Income Statement Year Ended November 30, 2018...
-
Prepare journal entries to record its following production activities. 1. Purchased $80,000 of raw materials on credit. 2. Used $34,000 of direct materials in production. 3. Used $41,000 of indirect...
-
Prepare journal entries to record the following transactions involving both the short-term and long-term investments of Sophia Corp., all of which occurred during calendar year 2011. Use the account...
-
Mansfield Congregational Church (MCC) is a small organization in Connecticut with only seventeen employees. Though its funds are dwindling, the MCC wants to hire a full-time maintenance employee to...
-
Explain the benefits a company earns by selling on the Web.
-
The circuit diagram shows a battery connected to five lamps. The currents in lamps A and B are shows. Write down the current flowing in a. lamp C, b. lamp E. 3 amperes A B 2 amperes D
-
How many years will it take for your savings account to accumulate $\$ 1,000,000$ if it pays $4 \%$ interest per annum compounded semiannually and you deposit $\$ 10,000$ every 6 -months at the end...
-
Melchar Company uses 78,125 pounds of oats each year. The cost of placing an order is $18, and the carrying cost for one pound of oats is $0.45. Required: 1. Compute the economic order quantity for...
-
Order the simplification steps of the expression below using the properties of rational exponents. 567xyll (567xy11) (81) (7) (+) (+) 3x (7xy)* . (34). 7. x (2+). y(2+) 3. x. y (7. x. y) 31.7 2.x. y....
-
1. Find the optimal March shipment schedule and its total transportation cost for each of the following: a. Cotton b. Polyester c. Silk 2. The company will be opening a silk-making department in the...
-
Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as...
-
State Loans for Students in the United Kingdom In 2013, around 53,000 students received around 675 million a year in state loans, up from around 52 million for 6,574 students in 2010. a. How would...
-
Matthew County issued a six-month, 6%, $1,000,000 bond anticipation note on March 31, 20X5, to provide temporary financing for a major general government capital project. The issuance of long-term...
-
If the interest rate is 10 percent, then the present value of $100 to be paid in 2 years is a. $80. b. $83. c. $120. d. $121.
-
If Indias economic growth slows and incomes grow more slowly, and if the government budget deficit increases, what will be the outcome in the loanable funds market? Indias government budget deficit...
-
Does purchasing power parity hold? If not, does PPP predict that the $C (loonie) will appreciate or depreciate against the U.S. dollar? Explain. The price of a Big Mac is $C6.88 in Toronto and $5.71...
-
The expected market return is 14.90 %. The risk-free rate of return is 5.66 %. Acme Co. has a beta of 1.96. What is the required rate of return? Express your answer in decimal format, e.g., enter...
-
Solve each equation. x 3 - 6x 2 = -8x
-
Nicoloff Corporation reported the following information (in thousands) at December 31, 2018: ________________________________________2018..............2017 Dividends...
-
Starlight Graphics Ltd. signed a 10-year, 6.5%, $700,000 mortgage on June 30, 2017, to help finance a new research laboratory. The mortgage terms provide for semi-annual blended principal and...
-
The following ratios are for Lin Inc. ___________________________2018________2017 Current ratio.................................1.5:1................1.3:1 Receivables turnover..............10...
-
Define a closely held corporation.
-
Explain the role played by a board of directors of a corporation.
-
Explain the steps in forming a limited liability corporation.
Study smarter with the SolutionInn App