Bicol Company uses approximately 200,000 units of raw material in its manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2022 at a strike price of P25 per unit. The entity paid P20,000 for the call option. The entity designated the call option as a cash flow hedge against price fluctuation for its July purchase. The market price of the raw material is P28 on December 31, 2021 and P21 on July 1, 2022. 1. What amount should be reported as derivative asset on December 31, 2021? a. 600,000 b. 580,000 C. 20,000 d. 0 2. What amount should be recognized as loss on call option in 2022? a. 300,000 b. 500,000 c. 200,000 d. 20,000
Bicol Company uses approximately 200,000 units of raw material in its manufacturing operations.
On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw material on July 1, 2022 at a strike price of P25 per unit.
The entity paid P20,000 for the call option. The entity designated the call option as a
The market price of the raw material is P28 on December 31, 2021 and P21 on July 1, 2022.
1. What amount should be reported as derivative asset on December 31, 2021?
a. 600,000
b. 580,000
C. 20,000
d. 0
2. What amount should be recognized as loss on call option in 2022?
a. 300,000
b. 500,000
c. 200,000
d. 20,000
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
