A speculator takes a long position in a futures contract on a commodity on November 1, 2012 to hedge an exposure on March 1, 2013. The initial futures price is $60. On December 31, 2012 the futures price is $61. On March 1, 2013 it is $64. The contract is closed out on March 1, 2013. What gain is recognized in the accounting year January 1 to December 31, 2013? Each contract is on 1000 units of the commodity.

Question

Quizplus · Accepted Answer

To calculate the gain, we need to first calculate the initial contract value and the final contract value.
Initial contract value = 1000 units x $60 = $60,000
Final contract value = 1000 units x $64 = $64,000
Gain = Final contract value - Initial contract value = $64,000 - $60,000 = $4,000
Since the contract was closed out on March 1, 2013, the gain is recognized in the accounting year January 1 to December 31, 2013. Therefore, the gain of $4,000 is recognized in the accounting year 2013. 
Hence, the correct option is C.

A Speculator Takes a Long Position in a Futures Contract