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Prepare all necessary entries to account for the above activities through October




I only have this last problem to complete my course. The offering of $20 is also all I have.;Problem M-5 (LO 8) Prepare entries to account for a cash?ow hedge involving;an option. Industrial Plating Corporation coats manufactured parts with a variety of coatings;such as Te?on, gold, and silver. The company intends to purchase 100,000 troy ounces of silver;in September. The purchase is highly probable, and the company has become concerned that;the prices of silver may increase, and, therefore, the forecasted purchase will become even more;expensive. In order to reduce the exposure to rising silver prices, on July 10 the company pur-;chased 20 September call (buy) options on silver. Each option is for 5,000 troy ounces and has a;strike price of $5.00 per troy ounce. The company excludes from hedge effectiveness changes in;the time value of the option. Spot prices and option value per troy ounce of silver are as follows;July 10 July31 August 31 September 10;Spot price................... $5.10 $5.14 $5.35 $5.32;Option value................. 0.20 0.23 0.37 0.33;On September 10, the company settled the option and on September 15 purchased;100,000 troy ounces of silver on account at $5.33 per ounce. The silver was used in the com-;pany?s production process over the next three months. In September and October, plating ser-;vices were provided as follows;September October;Units of silver used.............. 15,000 50,000;Other costs.................... $105,000 $350,000;Plating revenues............... $225,000 $750,000;Prepare all necessary entries to account for the above activities through October. Assume that;the hedge satis?es all necessary criteria for special hedge accounting.;PROBLEM M-5;July 10 July 31 August 31 September 10;Notional amount in troy ounces. 100,000 ? ? ?;Strike price $5.00 $? $? $?;Spot price $5.10 $? $? $?;Intrinsic value (if strike is < spot) $10,000 $? $? $?;Time value $10,000 $? $? $?;Total value $20,000 $? $? $?;Journal entries: The following are the accounts to use;Cash;Investment in Call Option;Unrealized Loss on Hedge;Other Comprehensive Income;Inventory of Silver;Accounts Payable;Accounts Receivable;Plating Revenues;Cost of Sales;Other Inventoriable Costs;Accounts Receivable;July 10 Investment in Call Option 20,000;Cash 20,000;To record payment of option premium;(100,000 ? $0.20).;31 Investment in Call Option 3,000;Unrealized Loss on Hedge ($10,000 ? $9,000) 1,000;Other Comprehensive Income ($10,000 ? $14,000) 4,000;To record change in value of the option. The;change in time value is excluded from assessment;of hedge effectiveness.;Aug. 31;Sept. 10;15;Sept. (a) Accounts Receivable 225,000;Plating Revenues 225,000;To record sales.;(b);Sept.;Oct. (a);(b);(c)


Paper#24238 | Written in 18-Jul-2015

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