Q3) Suppose that on November 15th, 2021 a company purchased ( i.e. Ilong) one May 2022 live cattle futures contract. One contract is for the delivery of 40,000 pounds of cattle. It closed out its position on February 18th, 2022. The futures price (per pound) was 135 cents when it entered into the contract, and 139 cents when it closed out its position. The futures price at the end of the year on December 31, 2021 was 136 cents. Assume the company has a Dec 31 year end for tax purposes. What is the total profit? How is it taxed if the company is (a) a hedger, and (b) a speculator ?
Q3) Suppose that on November 15th, 2021 a company purchased ( i.e. Ilong) one May 2022 live cattle futures contract. One contract is for the delivery of 40,000 pounds of cattle. It closed out its position on February 18th, 2022. The futures price (per pound) was 135 cents when it entered into the contract, and 139 cents when it closed out its position. The futures price at the end of the year on December 31, 2021 was 136 cents. Assume the company has a Dec 31 year end for tax purposes. What is the total profit? How is it taxed if the company is (a) a hedger, and (b) a speculator ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Q3) Suppose that on November 15th, 2021 a company purchased ( i.e. long) one May 2022 live cattle
futures contract. One contract is for the delivery of 40,000 pounds of cattle. It closed out its position on
February 18th, 2022. The futures price ( per pound) was 135 cents when it entered into the contract, and
139 cents when it closed out its position. The futures price at the end of the year on December 31, 2021
was 136 cents. Assume the company has a Dec 31 year end for tax purposes.
What is the total profit? How is it taxed if the company is (a) a hedger, and (b) a speculator ?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F894bdf24-0c9c-43db-b9aa-e938851cce9d%2F6421b5ce-84ca-49c0-a0a4-9b64c2e257d6%2Fe0t3dme_processed.png&w=3840&q=75)
Transcribed Image Text:Q3) Suppose that on November 15th, 2021 a company purchased ( i.e. long) one May 2022 live cattle
futures contract. One contract is for the delivery of 40,000 pounds of cattle. It closed out its position on
February 18th, 2022. The futures price ( per pound) was 135 cents when it entered into the contract, and
139 cents when it closed out its position. The futures price at the end of the year on December 31, 2021
was 136 cents. Assume the company has a Dec 31 year end for tax purposes.
What is the total profit? How is it taxed if the company is (a) a hedger, and (b) a speculator ?
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