Ivan has 14,000 barrels of oil that were purchased a month ago at $50.00 per barrel.On November 1,2014 Ivan hedges the value of the inventory by entering into a forward contract to sell 14,000 barrels of oil on January 31,2015 for $60.00 per barrel.The forward contract is to be settled net.Assume this is a fair value hedge.
Required:
Assume a 6% discount rate is reasonable,and using a mixed-attribute model,prepare the journal entries to account for this hedge at the following dates:
$$\begin{array} { | l | l | }
\hline & \text { When the market price is... } \
\hline \text { November } 1,2014 & \$ 60.00 \text { per barrel } \
\hline \text { December } 31,2014 & \$ 65.00 \text { per barrel } \
\hline \text { January } 31,2015 & \$ 62.00 \text { per barrel } \
\hline
\end{array}$$

Question

Ivan has 14,000 barrels of oil that were purchased a month ago at $50.00 per barrel.On November 1,2014 Ivan hedges the value of the inventory by entering into a forward contract to sell 14,000 barrels of oil on January 31,2015 for $60.00 per barrel.The forward contract is to be settled net.Assume this is a fair value hedge.
Required:
Assume a 6% discount rate is reasonable,and using a mixed-attribute model,prepare the journal entries to account for this hedge at the following dates:
 $$\begin{array} { | l | l | } 
\hline & \text { When the market price is... } \
\hline \text { November } 1,2014 & \$ 60.00 \text { per barrel } \
\hline \text { December } 31,2014 & \$ 65.00 \text { per barrel } \
\hline \text { January } 31,2015 & \$ 62.00 \text { per barrel } \
\hline
\end{array}$$

Quizplus · Accepted Answer

The Answer of Ivan has 14,000 barrels of oil that were purchased a month ago at $50.00 per barrel.On November 1,2014 Ivan hedges the value of the inventory by entering into a forward contract to sell 14,000 barrels of oil on January 31,2015 for $60.00 per barrel.The forward contract is to be settled net.Assume this is a fair value hedge.
Required:
Assume a 6% discount rate is reasonable,and using a mixed-attribute model,prepare the journal entries to account for this hedge at the following dates:
 $$\begin{array} { | l | l | } 
\hline & \text { When the market price is... } \
\hline \text { November } 1,2014 & \$ 60.00 \text { per barrel } \
\hline \text { December } 31,2014 & \$ 65.00 \text { per barrel } \
\hline \text { January } 31,2015 & \$ 62.00 \text { per barrel } \
\hline
\end{array}$$

Ivan Has 14,000 Barrels of Oil That Were Purchased a Month