prepare all the necessary journal entries from november 2, 2016, through february 3, 2017, to account for this hedge situation.
NGW, a consumer gas provider, estimates a rather cold winter. as a result it decides to enter into a futures contract on the nymex for natural gas on november 2, 2016. the trading unit is 10,000 million british thermal units (mmbtu). the three-month futures contract rate is $7.00 per mmbtu, so each contract will cost ngw $70,000. in addition, the exchange requires a $5,000 deposit on each contract. ngw enters into 20 such contracts.
REQUIRED:
why is this futures contract likely to be considered an effective hedge and therefore qualified for hedge accounting?
why would this transaction be accounted for as a cash-flow hedge?
assume that the december 31, 2016, futures contract rate is $6.75 for delivery on february 2, 2017, and the spot rate on february 2, 2017, is $6.85. assume that ngw sells all of the gas on february 3, 2017, for $8.00 per mmbtu.
prepare all the necessary
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