13. Indang Company requires 40,000 kilos ofsoya beans each month in its operations. Toeliminate the price risk associated with thepurchase of soya beans, on December 1,2011, Indang entered into a futures contractas a cash flow hedge to buy 40,000 kilos ofsoya beans at P150 per kilo on March 1, 2012.The market price on December 31, 2011 andMarch 1, 2012 is P160 per kilo. Theappropriate discount rate is 9% and thepresent value of 1 at 9% for one period is0.917. What amount should be recognized byIndang Company on December 31, 2011 asderivative asset or liability?a. 400,000 assetb. 400,000 liabilityc. 366,800 assetO d. 366,800 liability

option A) 400,000 Asset is right Answer: The entry on December 31, 2011 is: Futures contract…

Answered: O a. 400,000 asset

Business

Accounting

O a. 400,000 asset

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

13. Indang Company requires 40,000 kilos of
soya beans each month in its operations. To
eliminate the price risk associated with the
purchase of soya beans, on December 1,
2011, Indang entered into a futures contract
as a cash flow hedge to buy 40,000 kilos of
soya beans at P150 per kilo on March 1, 2012.
The market price on December 31, 2011 and
March 1, 2012 is P160 per kilo. The
appropriate discount rate is 9% and the
present value of 1 at 9% for one period is
0.917. What amount should be recognized by
Indang Company on December 31, 2011 as
derivative asset or liability?
a. 400,000 asset
b. 400,000 liability
c. 366,800 asset
O d. 366,800 liability

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