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
|