Prepare the journal entries to account for hedge

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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.

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:

 

When the market price is...

November 1, 2014

$60.00 per barrel

December 31, 2014

$65.00 per barrel

January 31, 2015

$62.00 per barrel

Reference no: EM131784295

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