Prepare the entry that opie should record on september

Reference no: EM131933175

Problem

Opie Industries is a manufacturer of plastic bottles. On September 1, 2014, Opie purchased an option contract at a cost of $2,000. The purpose of the option is to hedge against increases in the price of this type of plastic, "PET." The option is to buy 1,000,000 pounds of PET on March 1, 2015 for $.75 per pound. If the market price of PET is below $.75 on March 1, Opie will let the option expire. If the market price is above $.75, then Opie will exercise the option. The option is to be settled net. Opie assumes a 6% annual borrowing rate. Assume this is a cash flow hedge.

Prepare the entry that Opie should record on September 1, 2014. Then, assuming that the price of PET is $.72 on December 31, 2014 (Opie's year-end), prepare the entry that Opie should record. Finally, prepare the entries for March 1, 2015, assuming that the price of PET is $.78.

Reference no: EM131933175

Questions Cloud

What will your annual loan payment be : Dinero Bank offers you a five-year loan for $70,000 at an annual interest rate of 8.75 percent. What will your annual loan payment be?

What are beas new beta after releveraging and cost of equity : What are BEA's new beta after releveraging and cost of equity if it has 30% debt? Do not round intermediate calculations.

What is the present and future equivalent of fuel costs : The annual fuel costs required to operate a solid-waste treatment plant are projected to be $3.7 million without considering any future inflation.

What annual rate of return is earned on a investment : What annual rate of return is earned on a $4,000 investment made in year 5 when it grows to $9,000 by the end of year 9?

Prepare the entry that opie should record on september : Prepare the entry that Opie should record on September 1, 2014. Then, assuming that the price of PET is $.72 on December 31, 2014.

Prepare the journal entries to record merry transactions : At December 31, 2010, the bonds are quoted at 96. Prepare the journal entries to record Merry's transactions in temporary investments in bonds for 2010

What is the value of the levered firm : Anderson's Furniture Outlet has an unlevered cost of capital of 10%, a tax rate of 34%, and expected earnings before interest and taxes of $1,600.

What is cottage bakerys current degree of operating leverage : What is the Cottage Bakery's margin of safety at its current sales level? What is the Cottage Bakery's current degree of operating leverage?

How many months will take to repay the debt and interest : Angela owes $11,16684. She has made arrangements to repay the debt in installments of $324.99 per month, and will be charged monthly interest of 0.87%.

User Account

All Pages