Naga Company uses approximately 200,000 units of raw materials in the manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw materials on June 1, 2022 at a price of ₱25 per unit. The entity paid ₱20,000 for the call option and designated the call option as a cash flow hedge against price fluctuation for the June purchase. On December 31, 2021, the market price of the raw material is ₱27 per unit and on June 1, 2022, the market price is ₱28. Required: Prepare journal entries for 2021 and 2022 to record the call option and the purchase of the raw material.
Naga Company uses approximately 200,000 units of raw materials in the manufacturing operations. On December 1, 2021, the entity purchased a call option to buy 200,000 units of the raw materials on June 1, 2022 at a price of ₱25 per unit. The entity paid ₱20,000 for the call option and designated the call option as a cash flow hedge against price fluctuation for the June purchase. On December 31, 2021, the market price of the raw material is ₱27 per unit and on June 1, 2022, the market price is ₱28. Required: Prepare journal entries for 2021 and 2022 to record the call option and the purchase of the raw material.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Naga Company uses approximately 200,000 units of raw materials in the manufacturing operations.
On December 1, 2021, the entity purchased a call option to buy 200,000 units of the
raw materials on June 1, 2022 at a price of ₱25 per unit.
The entity paid ₱20,000 for the call option and designated the call option as a
flow hedge against price fluctuation for the June purchase.
On December 31, 2021, the market price of the raw material is ₱27 per unit and on
June 1, 2022, the market price is ₱28.
Required:
Prepare
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