How would the accounting be affected if the original costs

Assignment Help Finance Basics

Reference no: EM13618810

1) A Gunsmith company has an inventory of 100,000 ounces of gold originally purchased for $4.00 per ounce. On September 30, 2003, gold is selling for $5.00 per ounce in the spot market, and the company decides to hedge its gold inventory by going short in exchange-traded March 2004 gold futures at a price of $5.15. The exchange requires that a margin deposit of $825.00 be maintained for each 5,000 ounce futures contract. At December 1, 2003, the spot price of gold is $4.70, and March 2004gold futures are $4.80. By March 31, 2004 gold has dropped to $4.20 in the spot market.

a) Describe the documentation that the company must prepare to account for the silver futures as a fair value hedge.

b) Evaluate hedge effectiveness at (1) December 1, 2003, and (2) March 31, 2004. Use Futures Price

c) Prepare the journal entries required at (1) September 30, 2003, (2) December 1, 2003, and (3) March 31, 2004.

d) How would the accounting be affected if the original costs of the silver were $5.00, considering the lower-of-cost or market rule for inventory?

Reference no: EM13618810

Questions Cloud

Identify and interpret the critical sample mean or means : suppose the coffee industry claimed that the average u.s. adult drinks 1.7 cups of coffee per day. to test this claim a

A refrigeration system using r-22 as the working fluid has : a refrigeration system using r-22 as the working fluid has condenser and evaporator pressures of 250 psi and 30 psi

A analyse a technological device that applies the : a analyse a technological device that applies the principles of linear or circular motion. b assess the impact on

If at the beginning of the compression stroke the pressure : an air-standard otto cycle compression ratio of 9 absorbs 1000 btulbm of air. if at the beginning of the compression

How would the accounting be affected if the original costs : 1 a gunsmith company has an inventory of 100000 ounces of gold originally purchased for 4.00 per ounce. on september 30

Two solenoids are nested coaxially such that their magnetic : two solenoids are nested coaxially such that their magnetic fields point in opposite directions. treat the solenoids as

If a system has two redundant safety systems with failure : if a system has two redundant safety systems with failure rates of 0.16 and 0.22 faults per year respectively what is

Design an experiment that will require a two sample t : mtv some students do homework with the tv on. anyone come to mind? some researchers want to see if people can work as

Assume that the risk-free rate is 8 percent the required : assume that the risk-free rate is 8 percent the required rate of return on the market or an average-risk stock is 13

User Account

All Pages