Bart Golf Co. uses titanium in the production of its golf clubs. Bart anticipates that it will need to purchase 400 ounces of titanium in October 2022, for clubs that will be shipped in the holiday shopping season. However, if the price of titanium increases, this will increase the cost to produce the clubs, which will result in lower profit margins. To hedge the risk of increasing titanium prices, Bart enters into a titanium futures contract on May 1, 2022, and designates this contract as cash flow hedge. The contract gives Bart the right and obligation to purchase 400 ounces of titanium at $500 per ounce until November 30, 2022. Below are the contract's spot prices for November 30 delivery. Date May 1, 2022 June 30, 202 September 30, 2022 $ Spot Price for November Delivery $500 per ounce $520 per ounce $525 per ounce A October 5, 2022-Bart purchases 400 ounces of titanium at $530 per ounce and settles the futures contract. On December 15, 2022-Bart sells all of clubs containing titanium purchased in October 2022 for $500,000. The cost of the finished goods inventory is $280,000. How much should be reported in the income statement as the net cost of goods sold related to the futures contract and the inventory transactions on December 31, 2022? O $274,000 O $ 210,000 O$ 268,000 O$ 280,000 O$ 290,000
Bart Golf Co. uses titanium in the production of its golf clubs. Bart anticipates that it will need to purchase 400 ounces of titanium in October 2022, for clubs that will be shipped in the holiday shopping season. However, if the price of titanium increases, this will increase the cost to produce the clubs, which will result in lower profit margins. To hedge the risk of increasing titanium prices, Bart enters into a titanium futures contract on May 1, 2022, and designates this contract as cash flow hedge. The contract gives Bart the right and obligation to purchase 400 ounces of titanium at $500 per ounce until November 30, 2022. Below are the contract's spot prices for November 30 delivery. Date May 1, 2022 June 30, 202 September 30, 2022 $ Spot Price for November Delivery $500 per ounce $520 per ounce $525 per ounce A October 5, 2022-Bart purchases 400 ounces of titanium at $530 per ounce and settles the futures contract. On December 15, 2022-Bart sells all of clubs containing titanium purchased in October 2022 for $500,000. The cost of the finished goods inventory is $280,000. How much should be reported in the income statement as the net cost of goods sold related to the futures contract and the inventory transactions on December 31, 2022? O $274,000 O $ 210,000 O$ 268,000 O$ 280,000 O$ 290,000
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 3SBD
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Transcribed Image Text:Bart Golf Co. uses titanium in the production of its golf clubs, Bart anticipates that it will need to purchase 400 ounces of titanium in October 2022, for clubs that will be shipped in the holiday shopping season. However, if the
price of titanium increases, this will increase the cost to produce the clubs, which will result in lower profit margins. To hedge the risk of increasing titanium prices, Bart enters into a titanium futures contract on May 1, 2022,
and designates this contract as cash flow hedge. The contract gives Bart the right and obligation to purchase 400 ounces of titanium at $500 per ounce until November 30, 2022. Below are the contract's spot prices for
November 30 delivery.
Date
May 1, 2022
June 30, 2021
September 30, 2022
O $ 268,000
O $ 280,000
$
October 5, 2022-Bart purchases 400 ounces of titanium at $530 per ounce and settles the futures contract. On December 15, 2022-Bart sells all of clubs containing titanium purchased in October 2022 for $500,000. The cost
of the finished goods inventory is $280,000. How much should be reported in the income statement as the net cost of goods sold related to the futures contract and the inventory transactions on December 31, 2022?
O $274,000
O $ 210,000
O $ 290,000
Spot Price for November Delivery
$500 per ounce
$520 per ounce
$525 per ounce
4
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