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In September of 2011, Gunny Corporation anticipates that the price of heating oil will inc

In September of 2011, Gunny Corporation anticipates that the price of heating oil will inc

In September of 2011, Gunny Corporation anticipates that the price of heating oil will increase soon, and wishes to lock in a firm price for the winter months. They enter into a forward contract with Selton Industries to buy 100,000 barrels of oil at $160 per barrel in December 2011. Selton's cost of production of the heating oil is $120 per barrel.

 

Required:

Determine the economic impact of the transaction to Selton (the seller of the heating oil) at the market price levels indicated in the table below, with and without the hedge.

 

Market Price per Barrel

Forward Price per Bushel

Unhedged Market Gain / (Loss)

Economic Gain / (Loss) on Forward

Economic Income with Hedge

$180

 

 

 

 

170

 

 

 

 

160

 

 

 

 

150

 

 

 

 

140

 

 

 

 

 

 

16) On November 4, 2011, the Oak Corporation, a U.S. corporation, purchased components for an assembly machine from Maple Industries, a Canadian Company, which were put into Parts Inventory. The purchase price was 80,000 Canadian dollars and Oak agreed to pay in Canadian dollars in 90 days. Both corporations are on a calendar year accounting period. Assume that the spot rates for the Canadian dollar on November 4, 2011, December 31, 2011, and February 2, 2012, are $0.9985, $1.0191, and $1.0064, respectively.

 

Required:

Record the November 4, December 31, and February 2 transactions in the General Journals of Oak Corporation and Maple Industries. If no entry is required on a particular date, indicate "No entry" in the General Journal.

Tripti 07-Dec-2019

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