On November 15, 2021, Marsyl Company entered into a commitment to purchase 100,000 barrels of aviation fuel for P55 per barrel on March 31, 2022. The company entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2021, the purchase price of aviation fuel had fallen to P50 per barrel. However, by March 31, 2022, when the company took delivery of the 100,000 barrels, the price of the aviation fuel had risen to P58 per barrel. How much should be recognized as gain on purchase commitment for the year 2021?
On November 15, 2021, Marsyl Company entered into a commitment to purchase 100,000 barrels of aviation fuel for P55 per barrel on March 31, 2022. The company entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2021, the purchase price of aviation fuel had fallen to P50 per barrel. However, by March 31, 2022, when the company took delivery of the 100,000 barrels, the price of the aviation fuel had risen to P58 per barrel. How much should be recognized as gain on purchase commitment for the year 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On November 15, 2021, Marsyl Company entered into a commitment to purchase 100,000 barrels of
aviation fuel for P55 per barrel on March 31, 2022. The company entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2021,
the purchase price of aviation fuel had fallen to P50 per barrel. However, by March 31, 2022, when
the company took delivery of the 100,000 barrels, the price of the aviation fuel had risen to P58 per
barrel. How much should be recognized as gain on purchase commitment for the year 2021?
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