On August 9, Jacobs Company buys 25 contracts on Nymex to receive December delivery of Brent Crude Oil. Each contract is in units of 1,000 bbls at a futures price of $24.85 per bbl. The initial margin on the contract is set at $25,000, with a maintenance margin of $19,000. The futures prices are as follows:
Required:
a.Journalize the entries for Jacobs Company for the first three days of the contract.
b.Why are forward prices discounted and future prices are not discounted?

Question

On August 9, Jacobs Company buys 25 contracts on Nymex to receive December delivery of Brent Crude Oil. Each contract is in units of 1,000 bbls at a futures price of $24.85 per bbl. The initial margin on the contract is set at $25,000, with a maintenance margin of $19,000. The futures prices are as follows:  
Required: 
a.Journalize the entries for Jacobs Company for the first three days of the contract.
b.Why are forward prices discounted and future prices are not discounted?

Quizplus · Accepted Answer

The Answer of On August 9, Jacobs Company buys 25 contracts on Nymex to receive December delivery of Brent Crude Oil. Each contract is in units of 1,000 bbls at a futures price of $24.85 per bbl. The initial margin on the contract is set at $25,000, with a maintenance margin of $19,000. The futures prices are as follows:  
Required: 
a.Journalize the entries for Jacobs Company for the first three days of the contract.
b.Why are forward prices discounted and future prices are not discounted?

On August 9, Jacobs Company Buys 25 Contracts on Nymex