On January 1, a company holds an inventory of a commodity carried at a cost of $100,000. The commodity's current market value is $110,000. To guard against a potential decline in the value of that inventory, the company purchases put options with a total strike price of $110,000 exercisable in 3 months, paying a total of $500 for the options. The puts qualify as a fair value hedge of the inventory. All income effects of the inventory and the hedge are reported in cost of goods sold. On March 25, the commodity's market price is $108,000 and the company closes the hedge by selling the put options for $2,200. The company sells its inventory later in the year. The company has a December 31 year-end. What is the carrying value of inventory as of March 25? O&$ 108,000 Ob.$ 100,000 Oc$ 98,000 Od-s110,000
On January 1, a company holds an inventory of a commodity carried at a cost of $100,000. The commodity's current market value is $110,000. To guard against a potential decline in the value of that inventory, the company purchases put options with a total strike price of $110,000 exercisable in 3 months, paying a total of $500 for the options. The puts qualify as a fair value hedge of the inventory. All income effects of the inventory and the hedge are reported in cost of goods sold. On March 25, the commodity's market price is $108,000 and the company closes the hedge by selling the put options for $2,200. The company sells its inventory later in the year. The company has a December 31 year-end. What is the carrying value of inventory as of March 25? O&$ 108,000 Ob.$ 100,000 Oc$ 98,000 Od-s110,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
DO NOT GIVE SOLUTION IN IMAGE FORMAT
Transcribed Image Text:On January 1, a company holds an inventory of a commodity carried at a cost of $100,000. The commodity's current market value is $110,000. To
guard against a potential decline in the value of that inventory, the company purchases put options with a total strike price of $110,000 exercisable
in 3 months, paying a total of $500 for the options. The puts qualify as a fair value hedge of the inventory. All income effects of the inventory and
the hedge are reported in cost of goods sold. On March 25, the commodity's market price is $108,000 and the company closes the hedge by
selling the put options for $2,200. The company sells its inventory later in the year. The company has a December 31 year-end.
What is the carrying value of inventory as of March 25?
Ⓒ$ 108,000
Ob.$ 100,000
Oc$ 98,000
Ods 110,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education